Dec 11, 2023
In this live event hosted by Umbrex in November 2023, Ron Lumbra, a member of the CEO & Board of Directors Practice and Partner at Heidrick and Struggles, discusses how to get on a corporate board. He shares insider knowledge about the process. The event was recorded as a streaming event, with approximately 300 people signing up for the session. The discussion was facilitated and included questions from attendees.
Exploring the Landscape of Board Roles
The discussion focuses on the different types of board roles, such as Fortune 500 companies, other public companies, PE-owned portfolio companies, and family-owned companies.
The top of the pyramid is the public company corporate board, which is the most sought-after and difficult to join. People often serve on various types of boards, such as large-cap corporations, smaller publicly traded companies, private companies, family businesses, and nonprofits. These boards have similar structures, committee structures, and skills matrix, making them valuable ground training experiences for those looking to join corporate boards. A board is a group of experienced business people who are responsible for running and governing a company. It is not just a group of smart people, but specific roles that a board seeks to fill. He identifies the difference of a philanthropic board. When searching for a board member, companies often seek specific skills, such as financial experts with experience in China, supply chain, or being female. Ron talks about a typical board structure and defines the importance of what a candidate can bring to the board. The board consists of about 10 people, with four or five members fit into the CEO club or those who have run a big business club. The number one in demand skill set is financial experts, with three seats focused on audit and finance committees. The number one skill set is CFOs, while the other three are controllers, treasurers, VPs, SVPs, or audit partners from one of the big four. Companies are also looking for leaders in certain fields at specific times. Generally at present, their expertise in cyber and AI, supply chain, and ESG areas are in demand. Supply chain has seen a surge in demand, especially during the pandemic. Boards are looking for people who can lead, guide, and help with challenges they may face. They create a skills matrix to identify the various skills needed, which is more than the number of seats. People who can check more boxes credibly tend to be more attractive board candidates.
The Benefits of Being on a Board
Ron explores the reasons people want to be on a board and the benefits they receive. Operating executives with a day job often go on boards to expand their skill set, gain an outside perspective, and learn from others in different industries. As they age, they may consider a different career path and seek ways to contribute, give back, stay engaged, and stay relevant. Age plays a significant role in the decision-making process, as board directors are not employees and are not discussed in the proxy board. Boards typically have a mandatory retirement age of 72-75 years, which varies by company. People usually go on boards in their late 50s or early 60s and have a decade or more of tenure before they age off.
Ron also discusses the reality of being on a board in terms of time and commitment. Being on a board is different from being an operating executive, as it is intense and socially intensive. Board culture and how the board functions come together and go apart are important factors, both experience, personality and cultural fit are all factors considered. Board meetings are usually held five times a year, with committee meetings often occurring around them. Ron shares information on payment for board members and how to position oneself to get on a board, particularly at the non-finance 500 level.
Securing a Invitation to The Board
He explains that the supply side of the board opportunities is what attracts candidates, and understanding one's skill set, industry expertise, strategic acumen, and expertise is crucial.
Ron also highlights the private placement market, where 40% of corporate directors are placed through relationships. This can be an advantage for candidates, as they are paid to introduce competition. However, the private placement market is less competitive and more about networking and making oneself known.
Joining a board is akin to joining an elite country club, where applicants must demonstrate their knowledge and expertise. Networking is more about making yourself present and well known, rather than trying to make a sale. It's important not to take it personally, but rather to understand how the game works to get on board.
Ron encourages people to focus on networking, letting people know their skill set, and having the courage to differentiate themselves. Many people answer yes to every question and bring various skill sets, but this may not be memorable or distinctive. People who have the courage to say they know banking, regulation, and Washington can become extraordinarily memorable.
Trends and the Changing Focus of Companies
Ron talks about the trends in diversity goals and the changing focus of companies. He highlights the importance of women on boards and the momentum of advocacy groups around women on boards. The pandemic in March 2020 led to a shift in focus towards ethnic diversity, with a two-year window of intense focus on black directors and Latino Asian directors. Today, there is still an interest in ethnic diversity, but most boards are working hard to address the issue. Advocacy for women on boards is now focused around 30%, partly from shareholder advisory groups and exchanges. Some boards are advocating for at least 30% women on boards. Diversity matters have changed significantly over the past decade, with a period from 2020 to 2023 when companies focused on diversity, leading to a pent-up supply of non-diverse CEOs being called on boards. The market is now recognizing the importance of diversity in addressing societal constraints and positioning companies effectively.
Ron shines a light on the importance of understanding the unwritten rules of board roles and how they impact a candidate's authenticity and legitimacy. He emphasizes the importance of addressing governance matters, as it can impact a candidate's authenticity and legitimacy. He suggests that exposure to governance can come in various ways, such as attending board meetings, working with the audit committee, or working closely with members of the compensation committee. This exposure can demonstrate knowledge of board culture, functioning, agenda, and what matters within a board.
Understanding The Board Environment
Ron talks about the importance of understanding the board agenda and what matters, and why it is so difficult to secure a position on the board. Boards create a high bar to ensure that candidates understand their roles and culture, and that they don't bring on disruptive or underperforming individuals. By addressing these issues, candidates can demonstrate their commitment to good governance and the importance of understanding the board environment.Business schools and the National Association of Corporate Directors offer board directors certification programs, which can be helpful for getting on a board. However, it is important to not oversell these programs, as they may not provide the necessary knowledge and experience for decision-makers. Participation in these programs can make individuals more knowledgeable and contemporary in governance topics, making them better interviewers or interviewees.
A Focus on Governance
To demonstrate a commitment to governance, one can get on a nonprofit board. The type of nonprofit and the specific role on the board should be determined by the individual's passion for the subject matter. Nonprofit boards often have committees that align with the individual's interests and skills. For example, financial experts might be better suited for audit or finance committees, while those with expertise in governance may find the Governance Committee beneficial. Engaging in committees is where the work happens, and it is crucial to find a committee where you can grow and develop. This can lead to being tapped into a corporate board, as people will see you as a leader and a greater amongst equals. Boards are typically staffed over a decade, so it doesn't have to happen on the day you join. If you like the mission, theme, and value add, you will find yourself on committees, running committees, or chairing the board.
Vetting Candidates for Board Positions
When talking about the process of vetting candidates for board positions, Ron explains that it is divided into two categories: formal and informal. Formal vetting involves light off-the-record background checks, such as FBI police records and business references, to ensure a good understanding of the candidate. The process also includes back channel conversations with board members, who may have connections to the candidate. It is important to understand that every person you interact with or have worked with in the past is a potential candidate, and it is crucial to be aware of these back channel calls. Executive search firms fill about 40% of roles, and it is essential to ensure that candidates are aware of their interest. To do this, resumes should be on file with all major firms, as they are centrally administered and managed. This makes them a shared asset in the board database, which can be used to identify potential candidates for new searches.Joining a board of directors can be lucrative for younger professionals in their 40s-50s. However, it is challenging to position oneself effectively in these roles due to the value placed on experience and life experience. The average age of a first-time director on a publicly traded larger cap board is 58, so it is crucial to understand the circumstances in which you will be effective on the board. Ron shares an example of a public company CEO who overstepped the boundaries of his role as a board member, leading to a crash in his candidacy to illustrate that it is important to think carefully about your involvement and what you bring to the table before you commit to a board position.
Timestamps:
00:02 How to get on a corporate board with an insider
05:00 Board composition, skills, and motivations
10:14 Board service for executives nearing retirement age
12:40 Board positions and their requirements
17:01 Networking, marketing, and diversity in boardrooms
20:18 Board diversity and governance expectations
26:50 Board director certification programs and their value
28:50 Board governance and interview process for nonprofit boards
34:49 Board membership requirements and vetting process
38:06 Board member compensation and background checks
44:05 Board positioning and vetting process for executives
49:15 Board advisory roles and expertise
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