The effectiveness of directors can often be tied to whether they face any limitations placed on their board seat. The most common limitations come in the form of term limits, age limits, and the board willingly undertaking a proactive refresh. For companies like Forrester, that decided to overhaul its entire board in 2017 and 2018, fresh ideas and new voices in the room are what’s needed to maintain stability and balance within the board.
Below, we share more about board refreshes as well as insights from leaders of some of the biggest companies on when it makes sense to proactively refresh the board.
The best way a board can ensure that it is both a strong collective and made up of the right individual talent is to annually review its performance and refresh its board matrix. When boards are doing this effectively, they will inevitably discover that they need to proactively create turnover on the board and ask some great directors to step down.
There may also be clear disappointment in the performance of other board members. In PwC’s Annual Corporate Director Survey in 2019, 49% of directors believed that one or more directors on their board needed to be replaced (up from 45% in 2018). With this much dissatisfaction in the performance of their board peers, it’s incumbent upon boards to proactively conduct director turnover to maintain morale.
In 2019, Athena and TA Associates hosted a breakfast for some of the top CEOs and board directors in the New England area. One of those CEOs was Brian Moynihan, CEO of Bank of America, the 10th most profitable company in the world at the time. Athena Founder & CEO had a discussion with him about proactive board refresh and invited Athena Pioneers Deborah Ellinger and Pam Lenehan to do the same with the CEOs of iRobot and Forrester. Below, read a summary of the takeaways from those discussions written by Amanda Gerut.
From CEOs to Directors: “It’s your job to police the board” (Agenda, July 2019)
CEOs are comparing notes on the best ways to bring in new directors as boards continue to struggle with the challenge of easing off board members whose skills aren’t relevant or who simply aren’t a good fit anymore.
In cases where boards need a refresh and directors aren’t self-sacrificing, CEOs are having conversations with board members — usually over drinks, one CEO said — to coax directors into understanding that even though their commitment remains strong, it would be better for the company to bring in new blood on the board.
And CEOs aren’t happy about it.
“It’s unfair for the board to say, ‘Go fire your boss,’” said Brian Moynihan, chairman and CEO of Bank of America. Moynihan spoke about board refreshment at an event hosted by women directors group Athena Alliance in Boston this month.
It’s the job of the independent board chair or lead director to take on the responsibility of having difficult conversations with directors who shouldn’t stand for reelection to “take that pressure away from the CEO” and “convince people to go,” Moynihan said, adding that lead director Jack Bovender would handle any such issue if it came up the bank, which is how he thinks it should be.
“The chair has to take that on, not management,” Moynihan said. It’s directors’ responsibility “to police the board,” he said.
Still, some CEOs are taking the work of board refreshment upon themselves in cases where boards need new members and directors aren’t making changes.
George Colony, founder, chairman and CEO of Forrester Research, led a board overhaul in 2017 and 2018 after determining that while the board was providing “wisdom, resources and good thinking,” the company needed “new thinking.”
At that point, five of the six board members had served as directors since the 1990s, making their tenures longer than 20 years. Two directors had gone to college with friends of Colony’s and Colony had become “good friends” with those board members as well, which he said happens with board members, but further pointed to the need for refreshment. “In my bones, it felt like the right thing to do,” he said at the Athena Alliance event.
“People get worn out,” said Colony. “At the meetings, they hear me play my tapes over and over again and I hear their tapes over and over again.”
He added that 15 years’ tenure is “a good number,” but that 10 years’ tenure “might be an even better number.”
Colony, who owns 42% of the company’s shares, approached board member Robert Galford, who Colony said was the “people person” on the board. Galford has been a director since the company went public in 1996 and is the managing partner of the organizational development firm the Center for Leading Organizations.
“I wanted more women; I wanted Silicon Valley; I wanted more technology; I wanted people in their forties,” said Colony. He also wanted board members to have CEO experience and a director who had an extensive audit background to replace the audit chair, George Hornig, who had served on the board since 1996 and would be stepping down.
Galford worked with Forrester’s chief people officer, and between them they conducted 150 interviews over the course of a year, said Colony. He interviewed 10 candidates, and the board has since added five new directors as a result. Still, Colony said the process of asking sitting directors to step down was “very difficult.”
“When you ask a board member to leave — even those who say, ‘I’m tired of all of this’ — when you ask them to leave, they don’t want to leave,” he said.
“I kept chickening out,” Colony recounted. “I wanted Rob Galford to do it and then I wanted the chief people officer to do it and they said, ‘You do it.’”
Ultimately, Colony took individual board members out for a private — and “gentle” — conversation over drinks. He added that it took two drinks to have the conversations, clarifying that it wasn’t two drinks in one sitting, but one meeting followed by a second meeting two weeks later.
“They don’t believe you the first time,” said Colony. “It takes a lot of emotional quotient to get it done, and they’re probably all still mad at me.”
In addition, there was a bit of awkwardness. The board had difficulty in finding a new director who could serve as the audit committee chair, he said. One director the board liked declined an invitation to join “at the last second,” and Colony had to ask Hornig to remain as a director for longer than anticipated, after asking him to step down. Hornig agreed.
The audit committee is now chaired by Jean Birch, former president and CEO of Papa Murphy’s Holdings, who joined the board in 2018. The other new directors include David Boyce, chief strategy officer of software company InsideSales.com; Anthony Friscia, a consultant and former CEO of research and strategic advice provider Eduventures; Yvonne Wassenaar, CEO of information technology automation software company Puppet; and Neil Bradford, former CEO of investment ratings and fund research agency Financial Express. At 46, Bradford is the youngest director on the board.
Similarly, at technology company iRobot, co-founder, chairman and CEO Colin Angle felt that the board needed a refresh, he said, speaking at the event this month.
Angle said much of the board was made up of venture capitalists who remained as directors after the company went public and had lengthy tenures on the board. Angle said their long history with the company led to a dynamic in which the board members viewed the management team as young and inexperienced, which Angle said was “largely true” at one point, but that the opinion hadn’t changed over time.
“It’s kind of like being 35 and your parents still look at you as an idiot who dropped your lollipops on the ground and is splashing in puddles,” Angle quipped. He also compared being a director to “being a grandparent where you have a lot of the fun and don’t have to live the day-to-day.”
Yet, he added that board transitions are necessary so that companies can bring on new directors with experience and perspectives to help companies solve their next steps. Angle said the company needed directors with extensive public company governance experience and expertise in growing and scaling a business. Angle led the board refresh, he said, because the VCs on the board “didn’t want to fire each other.” He agreed with Moynihan that “it’s tough to fire the boss.”
Eventually, the iRobot directors agreed that transitions were necessary and that the company would add one new director a year for six years. The board is staggered, and Angle said that the structure meant that directors could review a small subset of three directors each year to decide who would step down. However, Angle said that while it was “obvious” which of the three directors should step down, board members have volunteered themselves to step down “zero percent of the time.”
“Ultimately, it would be great if the board could self-police,” said Angle. “My experience is that it’s tough.”
Like Colony, Angle had conversations with individual directors. Board members would often reiterate their commitment to the company at first, and then Angle would objectively lay out the skills the board needed and the skills of the directors up for election, he said.
“Oftentimes, by the end of the conversation, [the board member] will say, ‘I don’t want to go, but I get it,’” said Angle. The nominating and governance committee also engaged with directors and discussed the needs of the board. In the midst of the transition, the company dealt with an activist investor, said iRobot director Deborah Ellinger, who also spoke at the event. The engagement put a spotlight on directors with longer tenures, which also prompted the board not to nominate certain directors. In addition, said Ellinger, the board became clearer and more detailed with investors in explaining why directors were on the board, the types of backgrounds the company was seeking in new directors and how their recruitment efforts reflected the company’s strategy.
Since 2015, the company has added five new directors, including lead director Mohamad Ali, president and CEO of cloud backup and recovery company Carbonite. Additionally, the board now includes Michael Bell, former CEO of networking platform and solutions provider Silver Spring Networks; Elisha Finney, former chief financial officer of Varian Medical Systems; Ruey-Bin Kao, former CEO of Greater China at telecommunications and technology company Telstra; and Andrew Miller, chief financial officer of software company PTC
This month, the company announced that Eva Manolis would join the board. Manolis is former vice president of consumer shopping at Amazon.com and founder of Shutterfly.
Ultimately, the board transitions were right for Forrester, said Colony. For example, the reconstituted board oversaw the management team’s taking on $200 million of debt to make an acquisition. The previous board “would never have done that,” preferring to maintain more cash, said Colony.
“The new board is willing to take those risks,” he said. “They helped me understand those risks and helped me emotionally cope with those risks.”
He added that directors also began challenging him “in the first hour” of their first board meeting, which is what he wanted.
Ellinger of iRobot noted that new directors ask “a lot of questions” in their first meetings, which can sometimes be disruptive and distracting. As chair of the nominating and corporate governance committee, Ellinger has occasionally had quiet side conversations with new directors to get their questions answered without stopping the whole board meeting. Angle added that the board has also enhanced its onboarding materials to assist new directors before their first meeting as well as providing feedback after the first few meetings.
Another advantage Colony has noticed, he said, is that as CEO he typically wants initiatives to move faster. New directors on the board, especially those with experience working in Silicon Valley, have encouraged him to move even faster than he would have. Still, there have been some bumps in the road. One new director is still working to understand the difference between oversight and management, and Colony said that director has required more feedback.
“I think it’s great to have newbies; they’re not polluted with the thinking of the board and the way you’re supposed to behave…. But be ready to coach.”
Proactively deciding to refresh the board is clearly not something that is easy to do, both on a professional and personal level. Professionally, saying that a change in the room is required and that new voices and fresh ideas are wanted over the status quo is and can be a very challenging thing to accept. But as Colony from Forrester can attest to, accepting and embracing change is the first step to further advancing the interests of the company.
On a personal level, as the above examples illustrate, it can be difficult and awkward to inform long-tenured board members to give up their seat. It can be even more challenging if those directors that have been on the board for a long time develop close personal relationships with the one that is informing them.
CEOs and lead directors need to do what’s in the best interests of the company. If the status quo has become the norm and no one seems to be stepping up and challenging the status quo, boards should begin to explore the possibility of proactively refreshing their directors. New directors will give an injection of enthusiasm into the board and provide their own new set of different perspectives and outlooks. To get to this stage though, plenty of uncomfortable conversations will need to occur with board members whose time on the board has come and gone.
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