Enhancing Director Performance and Impact
Jack "Rusty" O'Kelley III, Susanne Suhonen
The Harvard Law School Forum on Corporate Governance and Financial Regulation published a bylined article, “Enhancing Director Performance and Impact,” authored by Russell Reynold Associates Consultant Jack "Rusty" O'Kelley III and Global Knowledge Leader Susanne Suhonen. The article discusses how to enhance board director performance and impact. The article is excerpted below.
Boards are increasingly seeking to diversify their membership and draw on expertise from a wider variety of sources. As a result, they find themselves with an exceptional number of new—and often first-time—directors. While the need to acclimate new directors may occur only sporadically, getting it right can be essential to the effectiveness of a board. In a past Russell Reynolds Associates research project, we interviewed new directors based in the UK and learned that it takes them about six board meetings to come up to speed. Given that UK boards typically meet relatively frequently, for US-based companies that translates into more than a year of lost time before new directors are contributing at the level they should.
In response to numerous inquiries from corporate boards about how to effectively integrate new board directors, we launched a research project to learn more about director onboarding practices across Fortune 500 companies. With responses from more than 160 directors representing over 100 Fortune 500 companies, the research shows that many boards are not investing heavily enough in integrating their new members. Few companies tailor their onboarding process, despite the wide range of experiences and tenures new directors bring. Just 24 percent of directors said they had experienced customized onboarding, compared to 58 percent who went through a standardized program.
We believe that boards can increase the effectiveness of new directors by investing in modular onboarding content that they assemble in different ways to meet the varying needs of new members and then deliver over an extended period of time. We also see an opportunity to elevate the onboarding process to more senior levels, with greater involvement from tenured independent directors. As part of the onboarding process, we see board mentoring—along with coordinated welcoming efforts by all directors—as an important means of efficiently integrating new board members.
In this post, we will discuss five key elements that will help companies build successful director onboarding programs.
1. Personalize the process and experience
Many companies have become more intentional about assembling a wide range of perspectives in the boardroom, appointing directors who are seasoned general managers, experienced leaders in adjacent industries and experts in other areas such as digital transformation or international business. One of the most striking findings from our survey was that despite this diversity of backgrounds, most directors—nearly 60 percent of them—received a standardized onboarding process. Fewer than a quarter of new directors had a customized onboarding process and—most surprisingly—almost a fifth had no formal onboarding at all.
The data also showed a lack of consistent onboarding programs for committees. Fewer than half—47 percent—of directors received onboarding for specific committees. Among those who received committee onboarding, about half of the programs were for the audit committee, 30 percent were for the compensation committee and 11 percent were for the nominating and governance committee, with the balance for others.
In our view, boards have an opportunity to accelerate new directors’ performance by investing more heavily in customized onboarding experiences and processes. To enhance director impact, we believe each company should have a standardized core and then create modular add-ons to meet the specific needs of different directors. A first-time director may need a basic introduction to board protocols and norms, for example, while a director from a different industry may need an orientation to sector-specific metrics and jargon. Additionally, the onboarding program should be heavily focused on getting to know all the other board members and all members of senior management, as well as becoming familiar with the business. The onboarding process also can and should include site visits to key facilities, with opportunities to observe operations and meet employees, as well as a current analysis of the competitive landscape. While directors will undoubtedly do their own due diligence before accepting a board position, a robust and thoughtfully designed onboarding program will help them put what they learned into context.
Companies will also want to think about how they pace the orientation. Rather than a one-off event that requires cramming large amounts of information into a short time span, we suggest spreading out the modules over six to nine months to allow the knowledge to grow in context.
2. Create a board-led process
According to our survey, the board secretary is the person most likely to be accountable for onboarding programs, leading the process for 44 percent of new directors. Independent chairs and lead directors rarely have such a prominent role; only 12 percent of new directors cited them as heading up onboarding (only slightly more than the percentage of directors who were responsible for finding their own way).
To read the full article, click here.