These days, it is not as much fun being on a public company board as it once was. There is more regulatory and shareholder pressure with increased exposure to vexatious litigation. And oh, yes, did we mention that board members now have to work much harder? Despite these augmented responsibilities as well as the fact that many prospective board candidates are unable to serve because they are managing their own financially challenged companies or their own board prohibits them from serving on another public board, (think Disney) many public companies are still able to attract competent directors. Why is this so?
1. A way to segue into retirement.
As executives move into the last third of their career, many start planning their retirement and what they will do to fill the time. If we had a dime for every executive who says "once I retire, I'd like to sit on a couple of boards," our coffers would be overflowing. With board memberships, a retired (or nearly retired) executive can have a place in the business world but on a more limited and structured basis. No analyst meetings, no customer presentations. Just three days a quarter, often in a nice location. As one executive said, "I don't want to practice, but I still want to be in the game."
2. Best practices.
Many executives who are in the prime of their career want to be on a board so they can learn from other executives and see what works for a different company, industry or culture. Susan R. Nowakowski, President and CEO of AMN Healthcare Services, says that a board position should allow executives an opportunity to be constantly challenged and growing professionally. She adds that directors should "get involved in addressing the organization's key strategic issues by joining, and perhaps even chairing, the board's strategic planning committee because strategic acumen and leadership abilities are valued in the business world."
3. Connect with other executives.
Many executives like being exposed to other executives—some for business reasons and some for simple networking reasons. It is not uncommon to see some potential board candidates choose to join a board based on the perceived caliber and stature of the other board members. Similarly, we have conducted searches where prospective candidates have commented that the board we were recruiting for was "not high wattage" enough for them.
Make no mistake about it, serving on a public company board can provide attractive compensation in light of the roughly 20 days of work a year. With many companies awarding a portion of board fees in the form of stock options, the potential for stock appreciation can be a strong incentive. Top corporate board earner Shirley A. Jackson, who sits on six Fortune 500 boards including FedEx, Marathon Oil and IBM, took home more than $4 million in board compensation from 2008 to 2010. See the rest of the top-earning corporate board members.
Right or wrong, some executives see a board seat as one more rung in a successful career. We have met executives who don't have the time or, truth be told, the attention to detail that a board requires, yet still they believe they are missing something by not serving. It's almost like the corporate version of "Keeping up with the Jones". Listen carefully, for the stories are plentiful of board members ever so quietly being asked to leave for not attending board meetings or not being prepared.
6. Strategic career move.
Many executives believe that serving on a board will provide greater visibility, making them more sought after for a higher position with another company. This seems especially true with non-CEOs. We know a former CFO of a utility company who landed a spot on a Fortune 50 consumer products board. Many years later, while being considered for the CEO position of his business, he beat out someone with much more experience because the board believed his knowledge as a board member for another company would make him more effective at managing their own board. Along these lines, some companies choose their CEO from their existing Board members.
While most board members don't join a company board hoping to be the company's CEO, it does happen. Betsy Burton, the former CEO of Supercuts, sat on the board of jewelry retailer Zale Corporation for three years before being selected as President and CEO. From July 2009 to October 2010, twelve Fortune 1000 companies selected their new permanent or interim CEO from their board ranks, up from only four the year before, and the trend is only growing.
7. Opportunity to serve.
Some executives don't care about any of the above reasons but simply want to serve; they believe that they have the wisdom and experience to add value to a particular organization. As Thomas M. Gorrie, a renowned international health policy adviser said when he was selected to join The Robert Wood Johnson Foundation's board of directors, "I am eager to lend my experience and passion...to help continue the foundation's reputation for innovation and excellence, and to play a role in helping achieve lasting change in health and health care."
If you are still interested in serving on a board after reading this, stay tuned. Next month's blog will share our secrets of how to position yourself for board service.