Public company boards are under pressure from investors. This stems not just from the usual focus on performance, but increasingly from questions and concerns regarding the quality of the board itself.
Board composition has become a focus both for institutional investors pushing for long-term thinking and for activist investors demanding short-term performance uplift. There are demands for gender and other forms of diversity. Finally, there are more combative campaigns for directors who bring a better value-creation track record.
One way that investors judge board quality from the outside is to scrutinize the membership of the board. They consider such factors as industry experience, diversity, tenure, and overboarding.
Yet when it comes time to fill an open spot on the board of directors, it is far too easy (and far too common) for boards to fall into the trap of short-term planning and “who do we know” candidate identification. Board search can easily become purely transactional, with the nominating and governance committee issuing an order to a search firm: “Get me one of these.”