December 15, 2015

Thinking Outside the Box on Board Composition

Korn Ferry’s recently released board practices report is particularly noteworthy for its inclusion of Wachtell Lipton Marty Lipton’s thoughts about sensible ways in which boards may ensure they evolve with the times – an increasingly challenging feat in the context of a seemingly continuously changing business environment and rising demands for non-traditional experiences and expertise such technology and cybersecurity.

Among other things, Lipton identifies these potential approaches boards may consider to ensure they – and their mix of skills and experience – remain appropriately current:

  • Expand the board when necessary to add additional expertise.
  • Adopt more rigorous director qualifications and focus on director evaluations.
  • Like the UK, pressures to impose director term limits may increase as a “solution” for board refreshment – but Lipton cautions against arbitrary and black-and-white standards, and justifiably notes the value of board collegiality developed over time.
  • Consider accessing needed knowledge and capacities with advisory directors or an advisory board.
  • Boards should have ready access to a wide range of internal and external experts on any issue that requires counsel and comment.

In view of how directors’ oversight responsibilities and the environment within which companies operate are evolving on a macro basis, it seems to me that use of the now-common director skills matrix in its traditional sense may be increasingly inadequate, as it presumes identified skills and attribute gaps will be addressed via new director selection. For sure, that remains one potential (and perhaps the best under the particular facts and circumstances) avenue to pursue – but it makes sense for boards to consider additional, non-traditional ways to add needed expertise, and to employ a mix of strategies to fill the inevitable, evolving gaps.

See this WSJ article: “Companies set up advisory boards to improve digital savvy” and blog: Boards Fight to Stay Ahead of Technology by Adding CIO Directors, this BDC Canadian study on the use of advisory boards by small and medium‑sized companies, and this Ivey Business Journal article on the Role and Value of an Effective Advisory Board.

Short-Term Pressures Distort Investment Decisions

Companies may be staying or going private so that they can avoid the short-term pressures – e.g., quarterly reporting, earnings  projections and associated investor reactions and pressures – associated with being public, according to this recent NYT article, which discusses the findings of this academic paper.  

Purportedly consistent with the notion that short-termist pressures distort investment decisions, the paper’s principle findings include:
– Private companies invest substantially more than public ones on average, holding firm size, industry, and investment opportunities constant.
– Private companies’ investment decisions are around 4x more responsive to changes in investment opportunities than are those of public companies.

The article nonetheless cautions public companies against over-reacting to the findings – suggesting and illustrating by example that one way to avoid the potential downsides of being private and reap the benefits of being public is for public companies to behave like a private company as respects maintaining a long-term view and behavior.  

Interactive Governance Platform: Bringing Your Proxy to Life

In this podcast, David Weil discusses the recently launched interactive governance platform – iiWisdom, including:

– What is iiWisdom?
– Why should companies have an interactive proxy?
– What is the process from a client’s perspective in working with you on an interactive site?
– How have investors used the site so far?
– Is this a product for institutions, retail investors or both?
– How do you balance what investors want vs. what companies want?
– What are the range of options for companies who want an interactive site?
– What are a few recommendations that people consider to create an interactive proxy?


– by Randi Val Morrison