Peer-to-peer and self-evaluations facilitated by independent third parties are helping boards break down communication barriers and fine tune their interaction with top management
This past May, Neiman Marcus Group added three new directors with technology experience to its board. The appointments, which were viewed as a departure from private equity adding mostly its owner-partners to the boards of firms it acquires, came within a few months of the disclosure of data breaches over an eight-month period that involved more than a million customers’ credit and debit cards.
One of the new directors is the former chief digital officer of Starbucks, where he had oversight of mobile payments, web, card, loyalty, e-commerce, WiFi and the Starbucks Digital Network. Another had been senior vice president of social for Google. Even the third appointee, who is 20 years older than the other two and was likely recruited for his luxury resort experience, spent 11 years on eBay’s board. That’s relevant to Neiman Marcus’ cyber-security exposure given that about 20 percent of its revenue comes from online sales.
Whether or not the luxury retailer, which was acquired in September 2013 by the Canada Pension Plan Investment Board and private equity firm Ares Management, has a formal board evaluation process in place, its beefed-up board illustrates the changes boards are now more likely to initiate in response to a revised business strategy or, in this case, newly apparent business risks.
More boards are engaging independent third parties such as the National Association of Corporate Directors’ board advisory services to facilitate their peer-to-peer and self-evaluations. These evaluations are aimed at ‘breaking down communication barriers’ and providing ‘a tune-up for their performance and relationships among each other and their interaction with the management team,' says Steve Walker, NACD’s general counsel and head of the board advisory services department. As part of many of these evaluations, NACD’s team will often help members develop a detailed board skills set matrix so that individuals’ skills may be compared with the overall strategy. This ensures the board as a whole does not lack a critical component to provide appropriate oversight and enable the company to remain competitive in a highly competitive world, Walker adds.
‘Evaluations should be used as a very positive and constructive opportunity to learn and improve your skills, both individually and collectively, as a board,’ he says. ‘The evaluation process truly should not be used as a punitive measure to eliminate board members.’
Although a director’s personal attributes, background and skills are critical, so is his or her ability to mesh with a specific board culture. ‘He or she may have the completely wrong chemistry to fit into this board,’ says Walker. ‘We’ve found that individuals can be very disruptive in the boardroom and boards are very reticent to address that head-on.’
Evaluations should not be limited to an annual exercise directed at individual performance. NACD counsels its members and clients to set aside a brief time at the end of each board meeting to assess how the meeting went, how the board and management performed, and whether there are issues the board should address now rather than waiting until the end of the year.
‘[Boards need to regularly ask themselves,] What could we have done better in this meeting? Did we stick to the agenda? Were there any members who were counter-productive through their action or inaction?’ Walker says. ‘Sometimes board members have [served] so long that they’re not actively engaged.’
For Walker, a board seat is ‘the most prime real estate there is in the world’ and it’s critical that it be occupied by ‘an active, engaged and passionate director who’s there to truly be an asset and provide sound oversight.’
When a company plans to add a new product line, enter a new geographic market or otherwise adjust its business strategy, directors’ skills and experience are often subject to additional scrutiny to see whether their skills remain relevant and viable in light of the company’s new direction. But Walker cites other factors to consider in assessing the value of individual board members.
‘Is he/she a leader, a committee chair, someone who’s a great mediator and facilitator?’ he asks. ‘Sometimes leadership skills trump technical skills ‒ and you need those people in the boardroom.’
Get some practical advice to help you get the most value out of your board from our free webinar on October 29, featuring Suzanne Folsom, general counsel and senior vice president of governmental affairs at US Steel, and Susan Ellen Wolf, founder and CEO of Global Governance Consulting.