Board Ruminations: Volume 2, Issue 1

When good enough isn't good enough

A recent call from the Nominating and Governance Chair of a small, mid-cap client company inspired me to write this piece. The company has an eight person board to which we have recruited four new directors to replace four outgoing board members in the past two years. Our client’s strategy in recruiting the first two new directors was to replace functional expertise.

With the second two placements, we were given wider latitude and were asked to reach into the senior executive ranks of larger companies to identify and recruit individuals with broad operating experience. The results were as follows: The first two directors are C-level executives with strong functional backgrounds from companies that are about the same size as our client. The second two are from larger companies. One is CEO of a $12 billion company and the other is the recently retired President of a $4 billion division of a $13 billion company.

The point of the N&G Chair’s call was to let me know that all of the new directors were doing a great job and already making contributions, but he also wanted me to know that the two directors from the larger companies were actually changing the dynamic of the board. When I asked in what way, he explained that they had brought with them a gravitas and sense of urgency that the board had previously lacked and a focus on performance that amounted to saying: “Good enough is not good enough.” These directors have been in the hot seat themselves, probably hundreds of times and are implying that they expect our client’s management team and the board to perform to the same rigorous standards to which they have been held. Granted, their planning and management development tools are arguably more sophisticated, but those tools are available to any company.

When I asked if there was a tinge of arrogance or patronage in their attitudes, the answer was absolutely not. It was simply resolve created by the expectation of superior performance in their respective careers. Neither of the directors brought any predisposition other than high standards to our client’s board. Their goal is to share their experiences and to raise the bar on performance expectations.

So, you ask, what’s the point? The point is that a company might have a solid board that is collaborative, serious-minded and diverse. But has the board reached to bring in directors that can lift the company to a new level, to challenge management to perform to a higher standard, to shake loose some of the cobwebs that inevitably build up when good enough is good enough?

Why would an executive from a large-cap company join the board of a mid-or small-cap company? The reasons vary, but typically it’s because there is a facet of the company with which the executive can identify. Whether it is the products or services the company offers, the opportunities or the problems that it faces, or the ability to help the company reach the next level, the willingness to become involved outweighs the negative factors.

As Nominating and Governance committees at small-and mid-cap companies are developing board matrices and having to plug holes when incumbent directors retire, they may want to think about supplementing industry or functional expertise with the expertise that necessarily comes with a suitable executive from a company three times the size of their own. Such individuals are available for board service and, if approached with a proposition that they find compelling, will enthusiastically join a smaller company’s board.

Remember when you were at a party as a young teen and every guy in the room was afraid to ask the prettiest girl at the party to dance? Well, eventually someone did, and that person probably wasn’t the coolest guy in the room; he was just the guy who had the guts to ask and she was flattered enough to say yes. The same logic applies here; if you approach one or two executives from larger companies about joining your board, you may be pleasantly surprised with their response and you might just raise the level of your entire organization.