Value creation entails having the right people around the boardroom table—this is a key message throughout Diligent’s recently published book, Governance in the Digital Age. Today, markets and business models are evolving at a rapid clip, which mean governance practices must evolve as well. Modern boards can no longer sit back. They must think like disruptors, explained Margaret Whelan, board member with TopBuild, in our book interview:
The board’s primary role, in my view, is to help the CEO to anticipate what’s around the corner.
— Margaret Whelan, Board Member, TopBuild
The Q&A below has been excerpted from Chapter 1, “Ensuring Value Creation (Despite Volatility).” In this interview, Whelan explains the importance of recruiting the right mix of boardroom skills and perspectives to boardroom—an approach that requires boards to extend beyond the traditional approaches to board composition and value creation.
Q: What overall practices are having the biggest impact in terms of financial success?
Margaret Whelan: It’s important to set the right tone and standards from the top, establish a growth plan through the CEO, have a board that is engaged and continuously refreshed to bring new energy and ideas into the room, and create an innovation strategy to think about things outside the box. The board’s primary role, in my view, is to help the CEO to anticipate what’s around the corner. That’s easier said than done these days, as digitization is accelerating the rate of change and adoption rates for new products and services.
Another positive trend is quality over quantity. There is a link between board size and action. Look at the size of the Wells Fargo or GE boards and what happened in those companies. There were many smart people, but with GE there was atrophy in the business model, and at Wells Fargo the culture facilitated some poor judgement. Ultimately, having a large number of directors didn’t help the shareholders.
Q: For the right people, should you look for former CEOs or for board members with other skillsets, like next-gen directors with digital experience?
Margaret Whelan: When you look at putting in next generation directors, it reminds me of five years ago when I was looking to join my first corporate board. The message was, “We need a woman on the board. We’re not looking at your resume, your skills, your capabilities, or your achievement. We just need a woman.” I avoided those positions. More recently the focus has been on attracting younger directors because they can bring such a diverse and valuable perspective. Today boards are saying, “We need someone who’s a little younger, they have so much value to add as they work, live and communicate in different and often more efficient ways.”
I’m a Gen Xer, working with a lot of Baby Boomers, wondering what the Millennials are thinking. Why not give them a seat at the table?
— Margaret Whelan, Board Member, TopBuild
In a lot of cases, their fresh perspective, even if they have yet to achieve their full professional potential, can still bring a lot of value add to a room that’s populated with aging Boomers that aren’t always fully engaged. PwC just published results of their Annual Corporate Directors Survey, and for the second year in a row, [nearly] half of the participants believe that at least one of their fellow board members is not adding any value. A young person with a fresh perspective is a big improvement versus someone who’s disengaged. Maybe we need to think about board composition differently and be open to busy younger directors joining for a term or two, versus retired executives who stay too long.
On the other side, if everyone in the boardroom is putting on their superhero capes because they’ve all been CEOs, CFOs, or had other senior executive roles, they are often used to having all the opinions, all the influence. They’re not always used to voting, and they can have strong personalities or opinions that less assertive directors can hide behind. Those directors don’t speak up or challenge others because they’re afraid they’ll be replaced. When a board runs well, each person has a seat at the table, an even vote, and an informed opinion to share.
Q: How are you seeing companies become more diverse?
Margaret Whelan: I’m in housing and construction, which is a very male-dominated industry. I work with a female CEO who is also chairman of a publicly traded housing company; more than half of her direct reports are female. That board recently announced two new female directors, so they now have a majority female board in an industry where half the boards don’t even have one woman director. How was she able to find talented female directors when other companies are saying that they can’t find any qualified female candidates? She brought in two very different candidates, including one with a retail background.
Sometimes the “disruptive perspective” boards need will come from candidates in an entirely unrelated industry. To Whelan’s final point, how can a director from the retail sector help a board think differently about consumer data or go-to-market strategies? In the end, board succession planning should always be driven by strategy–yet, boards must be open to the idea that candidates may look different than they’re used to (e.g., female, millennials, candidate without board experience).