Racial Justice is shining a spotlight on how public companies are managed. While blacks represent 12.4% of the U.S. population, only 3.2% of senior executive positions are held by black people, even fewer serve on corporate boards.
At the same time, COVID-19 is rewriting the book on business strategy and execution. Growing complexity, disruption and uncertainty have made the job of leading an organization more challenging. Yet, board turnover remains where it’s been for years, below 10 %.
Racial justice brings new urgency to board refreshment. Boards are expected to reflect the company’s customers and communities. Will racial advocates be content to wait as changes in the boardroom continue at its present glacial pace?
Companies need more diverse perspective in boardrooms now given the board’s responsibility for providing guidance while building talent around the company’s strategy and future needs. Relevant technical skills in cybersecurity, entrepreneurship and human capital are also critical.
While annual election of directors would seem to imply a fresh slate of board directors, it’s not the practice within the boardroom today. The average company director has been in his seat for more than a decade. And, the majority of directors continue to come from the same recruitment pool.
Today, most directors see their board assignment as a term for life, or at least a decade. Because the role of director brings with it the imprimatur of a successful corporate career, most directors are loathe to give it up. As one veteran director observed, even with the increased requirements for directors, no one wants to give up the prestige of a board position.
Board refreshment needs to be an annual event. In countless surveys, the majority of directors admit that at least one board member is no longer effective. However, the collegiality of the boardroom prevents fellow directors from singling out their less effective colleague, however obsolete his or her expertise and contribution has become.
The way to accelerate board refreshment is to require all directors to annually submit their board resignation to the Nomination and Governance committee chair. That simple practice would give the board the opportunity to create the most relevant and diverse board for the current business environment.
Given the sluggish turnover of directors, investors are paying more attention to board composition. Institutional investors have increased the number of no votes against chairs of the nomination and governance committee.
If investors were assured that the slate of directors presented annually went through a true re-nomination, the board would be strengthened and its legitimacy reaffirmed. The practice would enable the board to retain its most productive members and create vacancies to recruit for greater diversity and new and needed skills.
The stakes have never been higher to ensure the most diverse and relevant expertise in the boardroom.
Karen Kane, former board secretary of the Federal Reserve Bank of Chicago, is a NACD Board Certified Director and Governance Fellow, writes frequently on governance topics and works with CEOs and boards to improve board performance.