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Board Consulting

NACD – Today’s Board Member: Activist, Strategist, Counselor

  • March 2018

More than ever, organization leaders need committed counselors—individuals who will push them to greater heights and encourage them to pursue transformation. They need objective individuals who can advise, envision, and strategize for long-term success.

To find these advisors, companies are looking to their boards. Yet at the same time, the role of the board is changing dramatically.

In eras past, leaders looked to their boards to reflect and support their efforts. More recently, boards have been called upon to have more active oversight of the wave of risk and regulatory challenges. And, today’s board is being asked for still more. Navigating through a period of constant and fast-moving change, corporate leaders need a cast of engaged, insightful, curious supporters—people who are willing to press for innovation and contribute creative, strategic thinking. It is demanding new territory for board members. And it calls for a demanding new process to identify and engage the right individuals for the job.

To understand this process better, we conducted in-depth interviews with a dozen directors—all high profile current and former executives whose board experience covers more than 40 publicly traded companies across a wide range of industries. What we found was a great deal of change in board needs—and a tremendous difficulty in articulating that change. We found that companies want and need directors with a mix of activist and strategist skills. At the same time, they have been slow to realize that what they want is a new breed of director—and that finding these new individuals will require not just a change in attitude but also a change in tactics.

Boards must change their thinking now if they want any hope of being ready for the future.

What Has Changed

As boards wrestle with these new demands, and a profile for the new, ideal board member is emerging:

  • Recently retired CEO: Our research found there is a “sweet spot” in the experience level of the ideal board member. The individual should not be active in his or her own company. That intense responsibility leaves them too little time to devote to this new, more demanding board role. On the other hand, an individual too far removed from active leadership may be out of touch with the fast-changing business world. Therefore: look for recently retired or about-to-retire candidates. Zero to five years out from their leadership position is ideal for many directors.
  • Originate board candidates from both in and outside the industry circle. Boards should have a mix of backgrounds with some directors from the company’s traditional orbit and some from other industries and geographies.
  • Active counselor mentality: Rather than solely focused on containing risk, board members should be focused on helping to get the most out of the business.

Some experienced directors already take this new process to heart. Edward D. Breen, CEO of DowDuPont, chair of Tyco International and E.I. DuPont de Nemours & Co., and currently as the lead independent director of Comcast Corp. His watchword is “options.”

“The question I bring up in meetings is: What could you do to create long-term shareholder value and how to create options around this?” he says. This is a key role of the director, says Breen—to ensure the CEO and executive team are thinking about a range of possible futures and paths forward. If that’s not coming from the CEO, then the board has to push the subject.

There are many reasons why boards have not pressed CEOs in this manner in the past, he says. Some boards were just too nice to the CEOs. In other cases, the CEO may have been insecure or arrogant and discouraged that sort of input. But a CEO today needs directors who think like activists. “The board needs to be thinking ahead,” says Breen.

One director, who served on the board of a century-old manufacturer, has seen this forward-thinking board help executives make necessary changes. When he first came to the board, the director recalls management was stuck in outdated patterns, clinging to old product lines and markets. But the board was able to take a more forward-thinking perspective. He and other board members pushed management to be more aggressive in M&A activity and to prune lower margin product lines. Today, the company sports a wide array of new products and a renewed focus on innovation.

Directors can also provide support for companies wrestling with regulatory demands. One director joined the board of a financial services firm soon after the financial crisis of 2008. While oversight and regulatory responsibilities were still present, the director says, the board helped the company to see and pursue a broader strategy. That played out, for example, in the company’s acquisition of a regional competitor. The board was able to provide advice, support, and counsel during a time of change. This is the way the new and improved board member should approach the job, the director says.

First Steps

This new, active, counselor-director is not a pipe dream; it is possible to find these individuals. But it will require a new set of board search tactics:

  • A more thorough assessment, interview, and onboarding process led by the board or search partner. This differs from traditional processes, which may have been less detailed and demanding.
  • An increased willingness and openness of the board and the CEO to look at potential board members outside of the traditional board member profile, reaching out to candidates in different industries and different geographies.
  • A commitment to develop the existing board to adapt to this new profile of board director.
  • There is no one-size-fits-all process for boards today, but the overall goal is universal: Like the fast-moving business world around it, the search for new directors must also grow and change to meet new demands.

Boards are recognizing their need for a more nuanced profile of directors. They are acknowledging that the traditional insightful, curious, advisor who has been a CEO is no longer enough. What they really need requires a deeper level of insight into the individual candidate, a greater level of assessment of potential directors, and more time invested into the selection.

Done correctly, the results will make a significant impact on the performance of the company. The board will be working as an internal activist force to think about the future of the business and push shareholder value. It is a level of engaged support and advice no organization can afford to be without.

Sanjay Gupta is global industrial practice group leader at Egon Zehnder, an executive recruitment firm.

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