Instead, results from a recent Russell Reynolds study show that those attributes may be less relevant when it comes to choosing a lead director or independent chair. To elevate the performance of a board, the best mix of characteristics for a lead director is someone who has chemistry with the CEO and other board members and who is a good listener, can deliver clear feedback and is adept at drawing out viewpoints from knowledgeable directors, the research shows.
In its board-leader study, Russell Reynolds compared the characteristics of the independent board leaders at the 50 top-performing companies by total shareholder return between 2015 and 2017 with the bottom 50. The results showed that the attributes of board leaders in the two groups, whether they were lead directors or non-executive chairs, were strikingly similar. For instance, median age, board tenure and years in the leadership role were identical among the two groups. The backgrounds of the directors in leadership roles varied somewhat, but not markedly so. For example, 40% of the top 50 companies' board leaders had public company CEO experience, while 34% of the bottom 50 had the same experience.
Anthony Goodman, a consultant in the board and CEO advisory group at Russell Reynolds, notes that board effectiveness doesn't directly lead to greater TSR, but says the firm decided to use TSR as a proxy for company performance. He also adds that one of the main drivers of a well-functioning board is an effective board leader, which includes being able to draw in different viewpoints from directors around the table, rein in directors who take up too much airtime and make sure the channels of communication are open. And, even though the roles of lead director and non-executive board chair may vary, Goodman says that the duties have grown increasingly similar in recent years, and thus, the study grouped the two roles together.
Overall, the results show that boards tend to look to directors with certain backgrounds to serve in leadership roles. Former public or private company CEOs with at least a decade of tenure on the board seem to be likely candidates for lead director or board chair. But Goodman suggests that nominating and governance committees should also let the duties and responsibilities of the role help determine who should be considered a board leadership successor, rather than first looking around the table at possible candidates. In advance of a succession of a lead director or board chair, the nom-gov committee should redefine the board leadership role, says Goodman.
"Step back and think about what it is you like and don't like about the way the role is being done now and how it might need to evolve over the next few years," Goodman says. "When you create that, you've created a job description for your board leader. Then you can look around at the board and think about who could meet the set of criteria you have put together and who has the right character to be able to do it."
Indeed, a 2016 global survey of 369 board members conducted by Russell Reynolds also underscores that focusing on qualitative attributes such as the ability to listen and foster debate may be more crucial in appointing an effective board leader than anything else. When asked to describe the most important attributes of board leaders, directors said effective leaders "encourage independence, actively seek different points of view and foster high-quality debates."
PE and VC
Interestingly, Russell Reynolds' comparison of the top- and worst-performing companies found that a greater percentage of board leaders at the top-performing companies hailed from private equity or venture capital. Among the top 50 companies, 18% of those boards had a leader with private equity or VC experience, which was twice that of the bottom 50.
Goodman says he led a board evaluation this year for a company with a significant private equity presence and found that the directors with a private equity background were noticeably good at "sharpening up the processes of the board and improving the information flow to directors."
"They've got their own staff who are embedded in the company and are bringing information to all the board members that perhaps they didn't get before," says Goodman. "They also provide an interesting alternative perspective to what management is telling the board."
Directors with private equity or venture capital experience tend to think like shareholders, says Goodman, so they bring the board closer to what the views of shareholders might be. On the other hand, he notes, these directors might also have a shorter time horizon that can color their views.