With increasing pressure on corporate directors to keep up to date on hot topics, there is growing demand for director training to be detailed, efficient and well-targetted
It hardly seems possible but corporate board directors are under even greater scrutiny than they were just a year or two ago. Expectations are high for directors to monitor and control all types of management behavior. Couple this with a changing regulatory environment and directors have good reason to feel overwhelmed.
So how do corporate directors ensure they are up to speed on all the relevant issues and equipped to provide effective oversight? The traditional response has been to provide all new directors with a handbook detailing everything they need to be functional. This includes key SEC filings, corporate bylaws, biographies and contact information for directors and executives, press clippings, summaries of important board policies, outstanding issues, business overviews, legal histories, governance questions and more.
The handbook approach is tried and tested but, on its own, is insufficient. Just as the director’s role is changing, so too are the educational and training options. Most companies have some form of internal orientation and training program for new directors but the demand for specialist content from outside the company is growing.
Directors’ education is hardly a new phenomenon: almost every major US university offers some sort of program, as do several private and not-for-profit member organizations. The types of program vary, as does the content. ‘The number one change we have seen is that there is a lot more scrutiny concerning the topics, and who is presenting them,’ says Dan Siciliano, faculty director of the Arthur & Toni Rembe Rock Center for Corporate Governance and associate dean of executive education at Stanford Law School. ‘People have always cared about the content, but now they really care.’
Directors, and the corporate secretaries responsible for sending them on courses, are becoming far more selective about what they are hearing, and from whom. ‘I have had more calls this year than ever before from general counsel, corporate secretaries and directors themselves asking for details,’ says Siciliano.
As might be expected, risk management is the most popular topic, although it is becoming clear that risk means different things to different people, and that definition is highly dependent on industry, market cap and committee function. Kip Kelly, director of marketing for the University of North Carolina’s (UNC) Kenan-Flagler executive development program, explains that UNC has been seeing demand for more pragmatic and experience-oriented models for director education programs.
‘People seem to want less theory, smaller groups, and more time for participants to interact with each other and learn from each other’s experiences,’ he says. ‘We have heard complaints from some directors that other courses have had very good content but have been a little too passive. We want to give a more applied, hands-on experience.’
A universal concern
‘There is an appetite for understanding risk but with an underlying desire for it to be applicable to what I will call the great middle of publicly traded companies, such as industrials, utilities and others that are not financial institutions,’ notes Siciliano.
He agrees directors are seeking a more practical approach and feels that a lot of risk stuff being talked about is very interesting and relevant. But he feels that it is being driven by academics and policy makers, and hence is very focused on financial institutions and the unique circumstances of financial players – which isn’t always helpful to a mid-cap industrial company.
‘So the desire is clearly for risk issues that apply to all the rest of us,’ Siciliano says. ‘And there is a desire to hear from actual practitioners and discuss what they are doing at their companies. There is now a focus on the who and not just the what.’
UNC, which is offering a director education program for the first time in 2011, intends structuring the program along the lines of the key committees – nomination, compensation, audit and risk – rather than topically. ‘We will have unique models for each one,’ explains Kelly. ‘Also, a director who sits on one of those committees at a company that has dealt with an important issue will present at each panel to impart what to do in real-life situations.’
Apart from straight-up risk management, several other topics are proving popular at the 2010 directors colleges. Board and CEO recruitment is high on the list. Growing concern that regulatory changes, increasing workloads and potential liability issues will make it more difficult to attract and retain directors is also leading directors to ask questions about the best way to identify and recruit board members and strategies for replacing a CEO.
Siciliano notes that he is seeing a significant rise in interest around Foreign Corrupt Practices Act (FCPA) matters. ‘FCPA has really escalated,’ he says. ‘This year there have been some high-profile cases where companies that have generally had a good reputation have been hit hard, which is getting people worried. It’s also true that many more publicly traded firms now have some form of operation overseas.’
Setting the pace
With so many issues to cover there is a risk of watering down a program or overwhelming participants with too many sessions. ‘There is a tendency, in attempting to provide value, of over-doing the sessions at these types of events,’ Kelly explains. ‘In my experience moving people from one session to the next and the next and the next results in a loss of value at some level. Directors need a little ‘white space’ to give people a chance to network and interact before, during and after sessions.’
Siciliano agrees this can be an issue and suggests a solution: ‘A lot of director education is a stand-alone event, but we feel it needs to continue throughout the year. Part of what we have done with the Rock Center is, after people come to Directors’ College, we pipe them into the website, which has a lot of rich content from current programs, breaking news, videos and other things that will allow them to keep up with the topics they’ve studied. We are going to make it a continuing education experience so you don’t just get one dose and then are left wondering what the latest is. We are looking to update it every week.’
What’s more, this approach makes it easier to focus on a handful of items at the in-person meeting while still being exposed at a later date to other topics that may be of interest.
Whatever program you choose to send a director on – and there are many excellent ones available – it is important not to rely on a single tranche. Effective education requires a combination of in-house orientation on specific matters, broad courses offered by universities or other providers, conferences and networking events such as the National Association of Corporate Directors or the National Directors Institute, and the occasional top-up whenever a specific issue arises. Finding the right mix may be challenging, but it’s definitely worth the effort.
