Prior to 2002, a director’s most important role was to act as the CEO’s rubber stamp. Many board meetings were more executive retreat than business forum. “One Fortune 100 client actually wanted to know what a prospective board member’s golf handicap was,” recalled Carrie Pryor, managing director of headhunting firm Greenwich Harbor Partners, speaking at a recent Columbia Business School Alumni and Career Management Center event entitled “Preparing Yourself for Board Service.”
But then Congress passed the Public Company Accounting Reform and Investor Protection Act (as Sarbanes-Oxley, or SOX, is officially known), putting fiduciary responsibility for a public company squarely on the board’s broad shoulders. As a result, today’s public-company board seat has become a job in which members must earn their keep and attendance is mandatory. Rather than nod politely at each of the CEO's “suggestions,” directors must bring definitive skills and functional expertise to the table.
Still, for all its challenges, board membership brings a host of perks. Karen Greenbaum, president and CEO of the Association of Executive Search and Leadership Consultants, who moderated the program, ticks off a few: “You can use your knowledge and skills to enhance the direction of a company. And you gain tremendous experience that you can bring to your career and the business you work in day to day.”
And then there’s the pay. The National Association of Corporate Directors puts the mean compensation, including equity, at $55,900 for what usually amounts to four to five hours work per week. Large companies generally pay substantially more; $250,000 annually for a Fortune 500 director isn't unusual. And the work load is usually heavier — sometimes much heavier considering mandatory meetings and preparation, committee duties, and ad-hoc conference calls to discuss an unexpected opportunity or thorny issue. Indeed, hours can skyrocket in times of crisis such as when a board is looking for a new CEO or if an acquisition is underway, for example.
And operations and compensation levels of nonprofit and private-company boards vary greatly. George Wilbanks, managing partner of financial search firm Wilbanks Partners LLC, noted that “best practices have not yet caught up. Nonprofits trail behind the public market by 15 years or more.”
Who’s a Candidate?
Organizations typically start their search for new board members early, often a year before vacancies occur. The nominating committee may create a template that indicates skill gaps and when seats will likely become available so an unofficial beating-of-the-bushes for new directors can begin.
Patrick Prout, president and CEO of The Prout Group, a boutique search firm specializing in financial services and industrial manufacturing, said the process of filling a board seat has become similar to that of hiring an important executive. Multiple candidates are vetted, often requiring several interviews. Expect reference checks and deep dives into your résumé.
“Diversity has become much more important, and I’m not talking about just race or religion,” added Wilbanks. “Just as companies have learned in their operations that diversity can be very productive, so boards are moving beyond their school or their business network to find members who bring an external point of view.”
Who’s in demand today? Chief executives of other companies remain the top choice, said Pryor. “An important board seat is being the consigliere to the CEO, someone the CEO can go to who has been in a particular situation and can say ‘Here's what I did.’” That right-hand could also be a division head or partner in a law or accounting firm.
Nominating committees also want members who bring expertise in areas such as marketing, international, or specific industry knowledge. “A new skill that’s increasingly visible is chief information security officer,” said Greenbaum.
Although a board often functions through a variety of working groups, SOX mandated that every public company create two that are headed by outside directors: the audit committee, which oversees financial reporting (many companies also put this team in charge of risk oversight), and the nominating committee, whose job is to hire the CEO, board members, and sometimes advise on other hires.
In light of today’s leaner board structure — 10 to 15 members rather than the 20-30 common pre-SOX — candidates are no longer picked for a single attribute. “I placed a board member last summer who was African American, head of a $20 million division at FedEx, and understood logistics,” recalled Prout. “He checked three boxes.”
Put Yourself in the Running
Building a résumé that will put you on track for a high-profile board seat takes a minimum of 10–15 years. The panel suggested a three-step process:
1. Volunteer at nonprofits. Especially as you’re starting out, don’t overlook school and church boards as well as charities. Be cognizant of networking opportunities offered by nonprofit boards with well-connected individuals. Target organizations whose causes you’re passionate about.
The panel members agreed the rigors of placement on a nonprofit are more relaxed than for a public-company board. The boards tend to be larger, and membership often comes with a donation.
2. Next, approach entrepreneurs about joining private-company boards. The pay will be less than big public companies offer, but “if things work out, they can give you equity,” said Pryor.
Boards of some closely held companies resemble the pre-SOX model of insiders plus a few close advisors; these boards may have only one or two committees for which they need directors with certain skills. But other boards are just as rigorous as those at publicly traded firms. “Any company with an aspiration of an IPO needs to comply with SOX regulations,” on their board as well as in their operations, said Pryor. “The way they build their board sends a message to customers, vendors, and potential stockholders.”
3. Finally, tee up for the big time. The downside today is boards take fewer members. The upside: many boards welcome somewhat younger directors who bring specific areas of expertise.
Make the Leap
The panel stressed the importance of doing due-diligence on the company whose board you are invited to join. “Don't jump onto the Titantic,” warned Prout, who suggested interviewing current and retired members about the board’s culture as well as company issues. Red flags can vary from acrimonious board minutes to fishiness in audited financial statements.
Before joining even early-stage companies, be sure to run the opportunity past your current employer. Competitors are a no-no, of course. And although some companies welcome the experience you gain by serving on a board, others resent the time commitment and limit the number of boards you can sit on.
To be sure, networking remains the surest route to board membership. The panel recommended building contacts at each event you attend. “Remember, you're running a marketing program,” with yourself as the key product, said Wilbanks. “Keep adding names to your network. You never know who will open the next door.”