Last week, in this column I wrote about Spencer Stuart's Board Index 2012 of the S&P 500, which shows how deeply entrenched boards continue to be. I questioned how boards with so little diversity and turnover are equipped to provide effective governance to multinational corporations given the challenges and opportunities in the dynamic global marketplace. With three billion additional new consumers in emerging markets rising into the middle class, it should be evident that boards comprised of women and men with a variety of experiences and expertise, from multiple nationalities, will be in the best position to maximize corporate profits. Furthermore, with today's population already consuming resources equivalent to more than 1.5 Earths, we are on an unsustainable path to meet the demands of a larger worldwide community. Companies with strategic and innovative boards will win the global challenge in dealing with scarce resources. Such boards will also recognize dynamic opportunities for using technology to deliver of services, from financial products to healthcare and education.
This week, Korn/Ferry International's UK Board & CEO Services Practice released its analysis of newly appointed non-executive board members among the FTSE 350 -- the 350 largest companies, by capitalization, that have their primary listing on the London Stock Exchange. The report shows appointment trends by comparing Non-Executive Directors (NEDs) of the Class of 2012 (402 directors) to the first-time NEDs who were elected to the FTSE 350 boards in 2007 (466 directors).
An important trend is the increase in the number of women appointed to the FTSE 350 boards: 47 percent of the new directors in 2012 are women compared to 11 percent in 2007. In case you were about to celebrate the progress, however, the announcement of this achievement is often accompanied by the caution that "this increased diversity may come at the expense of executive experience."
Wait a minute... what exactly does that mean? Let me put this in context. According to the Korn/Ferry report, more of the new directors in 2012, compared to 2007, had experience in finance-related disciplines, especially among the women. Additionally, more of the new directors spent part of their careers working or living abroad. And although there was not an increase in newly appointed non-UK nationals, there was greater diversity among non-UK nationals including "Lebanese, Kenyan, and Indonesian directors alongside their European and American counterparts." There was also an increase in people with human resources, legal, and marketing experience. Approximately the same proportion of new appointments went to first-time non-executive directors: 48 percent in 2012 compared to 45 percent in 2007. Based on this data, it looks like the Class of 2012 is bringing new experience, expertise, and perspectives that will benefit their companies, and position them for success in the global economy. This is good news for shareholders.
After all of this, what does the line about the increase in diversity coming "at the expense of executive experience" refer to? Answer: Only 29 percent of the new directors in 2012, compared to 46 percent in 2007, had experience as executive directors on a quoted company board. And, although there were 72 CEOs among the new directors in 2012, compared to 67 in 2007, only 15 of them came from UK publicly-held companies, versus 21 in 2007. (That is, more members of the Class of 2012 CEOs came from private companies or started up their own companies or consultancies.) My objection to this thinking is that it implies that being the executive director or CEO of a quoted company is THE determining qualification for board membership for every candidate.
Rather, the most effective board will have people with a variety of experiences and expertise. Diversity means women and men, dynamic young entrepreneurs, seasoned FTSE 350 CEOs and directors, people from numerous countries worldwide, and people with experience in mobile technology, finance, environmental science, and so on. As Korn/Ferry says, the characteristics that boards seek in every appointment are "a sense of independence, strong communications skills, passion for the company's mission and the ability to think in a strategic manner." Beyond that, I contend that each company must build the board that will advance the company to achieve its greatest potential in this dynamic global marketplace.
What do you think?
My forthcoming book, "A Better World, Inc.: How Companies Profit by Solving Global Challenges...Where Governments Cannot" is being published by Palgrave Macmillan and will be available for pre-order on Amazon this fall.