Director education: a guide to the leading programs
A more dynamic world in which companies are exploring new markets and where business risks and opportunities are constantly changing is making director education opportunities more sought after than ever before. These opportunities range from academic overviews of governance theory to programs that specialize in practitioner-based sessions by directors who have racked up years of experience in the boardroom.
‘Sometimes the reason they come is dictated by where they are in their careers,’ says Erin Essenmacher, chief programming officer at the National Association of Corporate Directors (NACD). ‘We have a lot of folks who are self-motivated. Until director education becomes mandatory, there’s a high degree of self-selection.’
That said, NACD notes greater commitment by companies to set aside money in their budgets for ongoing director education. There is growing recognition that while having certain skills and experience is what puts you on a board, you need to stay current to continue fulfilling your duties, says Essenmacher. NACD created its Fellowship program, she adds, ‘to put some structure around that – to recognize the training people have taken the time and shown the commitment to get.’
As academic offerings go, the Directors’ Consortium, a collaborative effort between Stanford University’s Business School and Law School, the Booth School of Business at the University of Chicago and the Tuck School of Business at Dartmouth College, is unique in that it focuses more on behavioral dynamics in the boardroom than on traditional nuts-and-bolts law and governance.
‘Our view is that those kinds of interactions in the boardroom – whose voices get heard, how you make complicated decisions and how they can go wrong – are equally important to understanding the legal ramifications of your duties,’ says David Larcker, co-director of the Directors’ Consortium and senior faculty of Stanford’s Rock Center for Corporate Governance.
‘Best practices in governance in corporate America continue to evolve and improve, so if you are a corporate secretary or responsible for that function, you clearly want to understand what’s going on as far as what other companies are doing, what academics are doing, and what you can do to make your board best in class,’ says Mark Roellig, general counsel at MassMutual Financial Group. Roellig and Christine Peaslee, the insurance company’s corporate secretary, attended the inaugural session of the Boards That Lead program at the University of Pennsylvania’s Wharton School in June.
Providing a list of best practices is one thing the Directors’ Consortium intentionally does not do. ‘We think they’re interesting but fundamentally not useful because every situation is different,’ Larcker explains. Instead, the strength of the program is in providing an opportunity for deep thinking on issues and exchanging insights among peers, he adds.
Sydney Finkelstein, associate dean of executive education and faculty director at Tuck, agrees. ‘There are a lot of [so-called] best practices that are simply wrong,’ he asserts. ‘And there are lots of things that come out in the program about what you should and should not do. It’s not a simple list; there are nuances.’
Although the Directors’ Consortium features its share of training around hard financial issues such as executive compensation and audits, Finkelstein’s courses entail more discussion as they center on ‘softer’ areas such as board dynamics. He uses short, to-the-point case studies on acquisitions, organizational culture and leaders’ decision-making processes. Starting from the premise that CEOs are human beings subject to certain biases and ways of thinking, Finkelstein gets directors to consider critical questions the board could be asking to detect early warning signs a CEO may be going in the wrong direction.
‘One thing boards have to pay attention to is the big event that can be highly destructive,’ he says. ‘What can you look for? What questions can you ask? It is assessing risk, but not in the usual way. I am interested in risk that emanates from teams, from strategy – the softer stuff.’
Grace Cherashore, chairman of the board of Evans Hotels, a San Diego-based hotel chain where she previously served as chief financial officer, CEO and president, completed the Directors’ Consortium course in fall 2013. A graduate of the Tuck Business School, where business ethics and board responsibility are emphasized early on, Cherashore says she wasn’t surprised to see the Directors’ Consortium’s curriculum stress those same issues.
‘It’s very important to think to yourself, Is this enough? What other areas should we be looking at? It’s not simply responding to the agenda put before you,’ she says. ‘In a business that’s open 365 days a year, 24 hours a day, our oversight responsibilities literally never stop.’
A key takeaway from the Harvard Business School’s program is taking a more comprehensive view of the director’s role. ‘We get directors to think about their broader responsibilities like their role in strategies and their role in legal and economic conditions,’ says Jay Lorsch, the program’s faculty chair.
Harvard Business School also emphasizes preparedness for activist investors, including being aware of the type of investor that leans toward activism and why it might target your company. ‘We’re trying to encourage [participants] to recognize that they should be more engaged in talking to shareholders under appropriate conditions,’ says Lorsch.
A broader audience
The newer of the Wharton School’s two programs, Boards That Lead, grew out of a book of the same name that was published last December. Michael Useem, director of Wharton’s Center for Leadership and Change Management and one of the co-authors of the book, sees a broader audience for the program than just sitting board members.
‘Over time we would love to draw in people who are equity analysts – or raters like ISS – to become part of a more active dialogue on what to look for in a boardroom, what you want to see in a lead director, how the chair should operate, all those good things,’ Useem says.
For Roellig, the key takeaways from Boards That Lead were the materials on director evaluations, which ‘were well thought out and can be used to enhance our program’, and the focus in succession planning on what a board wants in a CEO.
The Directors’ Consortium is designed specifically for current directors, while some other programs take a more inclusive approach by inviting in aspiring directors, general counsel and corporate secretaries, and even in some cases securities regulators, private equity investors and securities analysts. ‘Sitting directors welcome non-directors as long as they’re high-caliber,’ observes Thomas Lys, faculty director of the Kellogg School of Management’s governance program. ‘We admitted a woman last year who was a divisional chief operating officer, but not a director. If you start getting people way outside the lower end of the C-suite, there is a little bit of grumbling because a lot of learning happens among the participants.’
Board service ‘has become more of a job than a perk’, Lys continues, citing self-evaluations as an example of the greater pressure on boards today. There’s also a growing understanding that directors who don’t pull their weight cause their fellow directors to work that much harder. ‘Proxy advisers like ISS have been paying attention to whether board members are trained or not,’ Lys notes. ‘If you have people on the board who have big names but nothing to contribute other than the name, you’re in trouble.’
It’s not unusual for a single company to send multiple board members to the same program session, says Finkelstein. Not only do they all get something out of the content, ‘but they also have a chance to confer later over beers and talk about the implications for their company and customize what they’re learning.’ Occasionally, past participants will ask him months later to do a presentation on a given topic for their entire board.
Structured academic programs aren’t the only resource board members are increasingly taking advantage of. NACD takes a different approach: by exposing its members to new, edgy ideas from futurists and other experts in eclectic fields, it tries to expand directors’ understanding of the political, socio-economic and cultural trends that are likely to affect how companies do business in the future.
The aim is to balance academic theory with a real-world approach, which is why 70 percent to 80 percent of NACD’s faculty consists of sitting directors. By bringing in practitioners to speak on issues ranging from compensation to executive searches, NACD tries to help directors understand how an issue affects them right now and what action items they need to take back to their boardrooms, says Essenmacher.
NACD’s Directorship 2020 initiative focuses on future trends such as how younger generations, particular geopolitical issues, increased competition and disruptive technologies are affecting businesses. It’s known for using speakers such as Trian Fund Management’s Nelson Peltz, who talks to directors about their role in shareholder engagement, and Lauren Taylor Wolfe from Blue Harbour Group, which takes ownership positions in small-cap firms to try to turn them around.
NACD’s speakers also include representatives from mid-tier audit firms, leading compensation consultants and top shareholder activist lawyers. The aim is to provide ‘a holistic, thoughtful mix of perspectives,’ says Essenmacher. NACD’s programs include a master class limited to 50 people in an intimate setting, offered four times per year, and a ‘general counsel in the boardroom’ seminar provided in partnership with the University of Michigan Law School.
The director services the EY Center for Board Matters offers are part of a broad array of subject matter expertise, from audits to taxes, that EY provides to its clients on an ongoing basis.
‘Boards as a group are looking to be effective in their fiduciary duties, and that includes understanding the evolving needs of the business,’ says Ruby Sharma, a partner at EY and a principal in the professional practice group responsible for engagement with boards and audit committees. ‘It’s an ongoing relationship and engagement with these people, and an aspect of that is training, as needed, on forward-looking issues that may be facing their industry or type of business.’
The EY Center for Board Matters also collaborates with Tapestry Networks to facilitate conferences of audit committee chairs from large public companies in various parts of North America. Participation in these small, off-the-record discussions is by invitation only, typically limited to 10-20 people, and the content is driven by the members of Tapestry and the EY Center for Board Matters. ‘It’s very much knowledge sharing and insight development,’ Sharma says. ‘We try to do at least three per year per network. In between there are calls and other touch points’, and any output approved for a wider audience is published on the center’s website.
For Useem, an education program must ensure directors are willing and prepared to lead, not just monitor. ‘You want them asking questions of substance that get at how the company is run, how leadership is being developed, where the company is going – the big strategy questions,’ he says. ‘We spend time on how you draw that line between being proactive and micro-managing. We help directors and executives know what management’s prerogative is, what the directors’ prerogative is, and what areas they should collaborate on.’