So you want to be a corporate director. Get in line. Although almost 4,000 directors are expected to retire from Canadian boards over the next five to seven years, the old saying that “it's who you know rather than what you know” still holds true. “It's a very, very difficult market; if you want to become a corporate director, you've got a really tough job in front of you,” says David Beatty, managing director of the Canadian Coalition for Good Governance. That said, there are still opportunities for highly qualified candidates–particularly current and former CEOs, CFOs and chartered accountants–to join the boards of some of the country's largest and most complex boards. Canadian Business spoke to the experts about how to score a coveted seat at the table.
1. Get the word out
Send a copy of your resumé to several reputable executive search firms. Your name–and any unique qualifications–will be entered into a special database that consultants use to narrow their list of potential candidates. “They should keep touching base every few months just to make sure they're at front-of-mind with us,” says Rob Grandy, a senior client partner at executive search firm Korn/Ferry International. About 25% of board vacancies are filled by search firms, which means the remaining 75% are placed by word of mouth. “Far too often, the old boys' network and who you know at the country club still dominates the selection process,” says Chris Bart, principal and lead professor of the Directors College, a joint venture between McMaster University's DeGroote School of Business and the Conference Board of Canada. Most importantly, network. Let friends, family and colleagues know exactly what kind of board you're interested in joining so they can spread the word too.
2. Put in your time
The best advice is to start small. “Serving on senior not-for-profit boards has been a wonderful way of breaking into the directorship network,” says Bart. By spending a few years on a junior board–including those of Crown corporations, smaller income and real estate trusts or hospital and charity boards–Bart says you can get the experience you need to be considered a serious candidate for a larger board appointment down the road. As senior directors begin to hit retirement age over the next couple of years, it is likely corporations will come knocking on the doors of smaller boards to refresh their ranks.
3. Do your homework
Don't let the “flattery factor” influence your decision to accept a board appointment. To ensure a good fit, do your due diligence before accepting a directorship. If appropriate, request a company tour to get a sense of the day-to-day operations. Plan to meet with existing directors and members of senior management to get an overview of the long-term direction of the company. Read through several annual reports and proxy statements and watch for any red flags. “It requires a fair chunk of your time,” says Bart. “You may very well come to the conclusion that this board is not right for you, given the particular demands on your time.”
4. Walk the talk
Gone are the days when a board appointment meant a cushy post-retirement gig complete with all the perks and little responsibility. Although Canadian directors currently face few official requirements for sitting on the board of a major Crown corporation or public company, many are choosing to go “back to school” to learn the tricks of the trade. Financial literacy–particularly for members of a board's audit committee–is an absolute must, says Beverly Topping, president and CEO of the Institute of Corporate Directors. Although formal certification shouldn't be considered a “ticket” to a directorship, Bart believes it will help qualified candidates “jump the queue.”
5. Ask the right questions
“You have to be a team player–but you still have to ask the right questions and the tough questions,” says Topping. Does the board have the right strategy? Have all of the significant internal and external risks been identified, quantified and addressed in the strategic plan? Are mechanisms in place to provide the board with timely feedback on the organization's progress against its strategy? “In most cases where one corporation acquires another corporation, it doesn't work,” says Topping. “And yet, knowing that statistic, why do so many boards of directors approve a certain acquisition? To a large degree, it's because they haven't had the expertise and the mixture of talent or experience on the board so that all of the different kinds of questions that need to be asked are asked.”
Of course, even when you work your way onto a board of directors, you'll have to continually prove yourself. Here are some warning signs that things might not be going as well as you had thought.
1. Asleep at the wheel
If you've never heard of Sarbanes-Oxley, if you're not quite sure what all the fuss over corporate governance is about, or if you find yourself cramming for board meetings during the taxi ride from the airport, you're unlikely to cut it in today's “litigious” business environment, says Bart. “You haven't got the time or the luxury to be able to sit back and play listen-and-learn. It's no longer the cushy, cozy, show up for lunch, collect your pay and play a round of golf.” According to a report published by Mercer Human Resource Consulting, the median compensation of a regular board member rose 22% to $73,000 in 2003, from $59,991 in 2002. And the experts say you should be prepared to earn every penny of it.
2. No longer a good fit
Breaking up is hard to do. But sometimes it's better for a director to move on–or to be pushed out. According to Beatty, a change in “principal occupation” or a “significant change of circumstance” are both legitimate reasons for a board to ask a director to step down. “So supposing you got involved in a very messy divorce case, you would probably be called up on the carpet…because your public image might not be bringing glory to the board,” says Beatty. Boards can also use formalized peer assessments and self-evaluations as a more subjective means of deciding whether a director continues to be a good fit. Beatty estimates that about 40% of the companies listed on the S&P/TSX composite index perform such an assessment each year.
3. Spread too thin
There is increasing pressure from institutional investors to limit the number of boards a director can serve on. The days of directors sitting on 20 or more boards are over, says Bart, who adds that, depending on the complexity of the company, between one and five boards is a more realistic number. Sitting on the board of a large multinational corporation like Nortel Networks would require “an effort of approximately 90 days a year,” says Bart. “So if you do the math, you'd be limited to sitting on just two of those. If you don't have the time, then don't take the job.”
4. Conflict of interest
Establishing the “bright red line”–a litmus test for ensuring a clear separation of responsibilities between management and directors–is of paramount importance in today's high-risk business environment. Increased attention from the media and shareholders means any wrong steps will be closely scrutinized. According to Carol Hansell, a partner at Toronto-based law firm Davies, Ward, Phillips & Vineberg LLP, the law now recognizes that conflicts of interest are going to happen but makes allowances “as long as the director declares the conflict and abstains from voting.” This only becomes a problem when the director is absent from the boardroom “more often than not.” Essentially, if a director has a relationship with management that would make it difficult for her to oversee management effectively, she shouldn't be considered independent.
5. Board Bully
Boardroom culture is one of the single most important determinants of board effectiveness–and it takes only one rotten apple to spoil the bunch. “We believe the thing that makes or breaks a director in a high-performing board is the behaviours that occur in the boardroom and the kind of culture that exists in the boardroom,” says Bart. There's a fine line between being courageous enough to ask the tough questions and respecting the opinions of your fellow board members. Being a bully is not likely to win you many points, says Korn/Ferry International's Rob Grandy. “People shy away from that type of person because it makes the board less effective.”