Managing Board Turnover
The very public, and unpleasant, battle between Disney’s former CEO Michael Eisner and the company’s shareholders before his departure in 2005 could have led to an equally dramatic, high-profile turnover on the board, given that several of Disney’s directors were longtime Eisner supporters. But while the board’s complexion has changed fairly dramatically since Robert Iger took over as CEO, the shift has been more of a quiet evolution than a radical reconstruction.
Over a period of four years, Iger and the board have replaced Eisner friends like Leo O’Donovan, Gary Wilson and George Mitchell with new blood, such as Apple icon Steve Jobs, retired Starbucks CEO Orin Smith and Susan Arnold, president of global business units at Procter & Gamble. Each new director recruitment took place over a period of six months or more, giving both parties ample time for due diligence and to assure themselves that the new recruit would fit in well with Disney’s evolving board culture. Similarly, UnitedHealth Group’s board, rather than risk more headlines by asking directors to step down, shortened terms to one year and then let those tenures expire quietly, filling the seats as vacancies arose.
That is typically the way it ought to be done, experts agree. Even in cases where change is clearly warranted, there are a host of reasons not to rush the process. For one thing, it’s harder than ever to find great directors, given the time commitment required for board service, and sitting CEOs have tighter restrictions on the number of boards on which they can serve. For another, you don’t really want to hire any directors who don’t take adequate time to do their due diligence. “A good board member is going to want to talk to other board members, the CEO, general counsel, the CFO, the outside counsel, the audit firm,” notes John Gardner, vice chairman with executive search firm Heidrick & Struggles.
And unless the current directors are not adding any value, it’s best not to show them the door abruptly, says Korn/Ferry International’s Charles King. That kind of dramatic move could signal Wall Street that the company is in governance trouble. Instead, consider temporarily expanding the board by one or two members to accommodate new talent. As King points out, “There are a lot of things you can do to manage the board in terms of the skill set so you can create this portfolio of talent and manage that portfolio.” - C.J. Prince
Board Renewal as a Strategic Differentiator Driving Success
Public company directors know that our most important responsibility to the shareholders is succession planning and continuity of leadership to build and lead the enterprise. We are in a time of great market upheaval and pressure. This will require many corporations to adjust and change their business model. They will need to cut costs and think more broadly about how to compete to build and preserve shareholder value.
All directors clearly understand the importance of having a robust pool of general managers to develop and cultivate for leadership succession. When the CEO hires a senior executive to build the leadership team we are actively involved. We understand that corporations outgrow the capabilities of their executives. Hiring and promoting talent to adjust to a new business model enables the company to grow and adapt to changing business environments.
Although a board faces the same outside pressures, board succession is almost never discussed. It is one of the taboos in the boardroom, yet the perspective around the boardroom table must change with time. Just as a company may outgrow its CEO, the company also may outgrow the capabilities of its board members.
Companies that engage in board renewal find that it brings a set of experiences, perspectives and an important network of introductions and contacts. A positive example can be seen at SunPower Corp. The board was small when SunPower, a solar panel systems company, went public in 2005 with three outside board members.
SunPower’s business evolved; we acquired and integrated companies and began the process of expanding our thinking on offshoring our manufacturing, tightening our supply chain, and globalizing our go-to-market. We recruited Dr. Uwe-Ernst Bufe, former CEO of Degussa, a global chemical company, to help mentor our CEO and bring contacts and expertise in the polysilicon supply chain, as well as deep operational knowledge.
SunPower then adapted its business model, expanding to sell its solar panels from residential,to business rooftops and to joint venturing with utilities. We needed depth, experience and knowledge in the utilities sector, and added Tom McDaniel, former EVP and CFO of Edison International. This is an example of building a board and forward investing in it to bring knowledge, direct experience, contacts, and what I characterize as “scar tissue,” to the boardroom. The board is truly in a partnership, to mentor and contribute actively with our CEO and his leadership team.
A contrary example can be seen at Lucent, where I was a board member in 2000. Lucent went through an enormous market challenge when the telecom industry imploded and revenues went from $33 billion to $8 billion in one year. Clearly, bringing in a board member who had gone through market dislocations and financial restructuring would have enhanced the company’s ability to remain viable, strengthened the CEO’s knowledge, and allowed the company to make the necessary aggressive decisions in order to endure and evolve. Rather than do that, the company brought on a NASA scientist who had never been in the for-profit product world, which was clearly not the perspective needed.
I believe companies and shareholders are well served when boards actively engage in board renewal. Just as CEOs look at the management team and see who would scale and who would not, and what is needed to maximize the enterprise performance in a marketplace, the same analysis should be applied to board members.
Annual board assessments usually focus on the information that management supplies the board and whether it is received in a timely manner. What boards may better ask themselves is whether the board can be strengthened—what new perspectives and experience would help our enterprise going forward? If this question is asked, we may see more board renewal in the future.
-Betsy S. Atkins is CEO of Clear Standards and serves on the boards of Polycom, Chico’s FAS, Reynolds American, NASDAQ LLC and SunPower.
When Abhi Talwalkar agreed to take the top post at
But the chip-maker had fallen far and fast from its perch, discovering that in the rapidly changing and consolidating chip industry, a company’s future was only as sure as its ability to adapt nimbly to change. As early as the late ’90s,
Corrigan and the
One particularly bold move was to shed or shutter
The transition has not always been pretty, Talwalkar admits, and things grew particularly ugly following the merger with Agere, as both investors and employees expressed doubts about the CEO’s ability to achieve the promised synergies. “People wanted to hand me my head, frankly,” he recalls. “But we’re through that because we moved very quickly.” Since the merger’s completion,