Vice Chair, Board & CEO Services, Global Leader, CEO Succession Practice
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Note to the Board: Should Someone Step Down?
If there’s one issue management and boards can agree on, it’s the need to replace certain directors who are unable to deal effectively with today’s hyper-evolving business world. And perhaps the sooner, the better.
Indeed, the viewpoint is remarkably widespread. According to a new survey, nine out of ten C-suite executives believe at least one director on their board should be replaced. At the same time, 66% of those executives cite the reluctance of directors to retire as the biggest obstacle to diversity efforts. “It’s a lot easier to put a director on the board than to take one off,” says Jane Stevenson, vice chair in the Board and CEO Services practice at Korn Ferry.
To be sure, the crisis in confidence only surrounds one or a handful of directors on a board, not the entire group. And the nature of being on the board—where the buck often stops—has always opened directors to criticism, fair or not. Still, the survey suggests that there’s a new urgency to have boards that are fully equipped to help firms develop strategies to cope with the growing challenges around artificial intelligence, sustainability, talent, and more.
Experts say some executives feel that a lack of board refreshment can lead to oversight challenges damaging to the company’s current—and future—results. Nearly half of C-suite executives think their boards don’t understand shareholder priorities, the impact of emerging technology, or cybersecurity and data-privacy risks, for instance. Anthony Goodman, head of the Board Effectiveness practice at Korn Ferry, says the lack of confidence comes at a time when leaders are looking to boards more than ever for guidance on crucial operational issues. “Management recognizes they are entering a critical period and need every director contributing,” says Goodman
To some degree, even directors themselves agree with their C-suite on the need to refresh. Almost half of directors in the study, 48%, also think one or more of their board counterparts should be removed, most often citing performance issues as the reason. Experts say a certain level of self-preservation is at play among directors themselves—the increase in activist campaigns, regulations, and lawsuits against boards and individual directors is shining a light on overall performance and effectiveness. “Underperforming directors also impact the ability of other directors to be at their most effective,” says Stevenson.
To improve turnover, more firms have been instituting age and term limits: nearly three-quarters of S&P 500 companies have a mandatory retirement age for board directors. But experts say progress has been slow. One issue is that many board experts believe age and term limits are arbitrary barometers of performance. “A director’s effectiveness or engagement isn’t always just related to how old they are,” says Stevenson. Another challenge is to increase assessments of directors. According to the study, only 37% of directors say their board uses them.
For his part, Goodman believes reluctance to retire isn’t at the root of how executives and directors view the need for board refreshment. Rather, he sees the reason as a “reluctance to deliver difficult messages to underperforming directors.”
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