Lead directors need to be diplomats, have the ability to inspire trust, and have the stature if not the experience of a CEO
Spurred by reforms in corporate governance, the number of boards that include the position of lead director, or some variant, has escalated dramatically. So has advice about what the role entails in such key areas as strategy, fiduciary responsibility, and subjectmatter expertise. But what of the personal attributes that a lead director must have to meet the subtle challenges of the role? A series of conversations with some outstanding lead directors turned up surprising agreement about the personal characteristics and technical qualifications that the role requires.
Among the technical qualifications cited by these lead directors, three stand out:
1. CEO-like stature and experience."I think it's preferable if the person has had CEO experience," says Dick Hanselman, lead director, Forward Air Corp. "It gives the lead director a lot of credibility and a very clear understanding of the dynamics that exist between the board and the chief executive and between board members." Nevertheless, he says it's not an "absolute" requirement. Echoing the views of most of our interviewees, General John "Jack" Chain, Jr. (USAF Ret.) and lead director for Reynolds American, says CEO experience is "a positive, but not a requirement" for the lead director job.
2. Tenure on the board of approximately two years.Although some boards have attempted to parachute a new lead director in, all of our interviewees agree that it's a bad idea. Les Brun, who is chairman and CEO of SARR Group, chairman of the compensation committee for ADP, and a director for Merck and Broadridge Financial Solutions, believes that it takes nine months to a year to understand the company, and even longer to develop relationships with other board members. Corbin McNeill, lead director of Owens-Illinois, points out that if the board meets frequently enough, the rampup time for becoming lead director may be as little as 18 months. In any case, he says, the potential lead director should have experienced at least two strategy sessions in order to be fully aligned with the objectives of the company.
3. Time to devote to the job.An extensive study of board effectiveness conducted by Heidrick & Struggles in conjunction with the Center for Effective Organizations at the University of Southern California's Marshall School of Business, found that the average time directors spent on board matters increased from approximately 150 hours in 2001 to more than 200 hours in 2007. For lead directors today, the figure is likely to be as much as 300 hours. Further, says Hanselman, the lead director must be available to the CEO "virtually at a moment's notice." Says Hanselman, "The CEO has to feel he can pick up the phone at any time and expect a callback within eight hours. I have seen two instances in my career where that time was absolutely critical."
Although "lead director" suggests "leadership," the word heard repeatedly in our interviews was "diplomat," which more accurately captures the subtleties of the role. The five personal characteristics that our interviewees most often cited as indispensable paint a portrait of the tactful emissary moving easily between the board and the CEO and judiciously helping resolve issues of mutual interest. Those five characteristics, say our interviewees, include the ability to:
4. Inspire trust.Bill Newlin, head of the nominating committee for the board of Kennametal, has served as a non-executive chairman, a lead director, and a presiding director in the course of his career. "The lead director, besides having the qualities of any board member—good judgment, integrity, and the like—must have the personality to encourage trust with the board and trust with the CEO," he says. Part of that trust, says Brun, is the confidence on the part of the other board members and management that the messages delivered by the lead director "won't be filtered by the biases of the messenger." It is in that respect, he says, that the position becomes "a diplomatic role."
5. Communicate effectively.As a conduit between the board and the CEO, the lead director "must be able to convert strongly held opinions into concrete messages," says Rick Hernandez, former lead director at Nordstrom and now board chair. He believes that the essence of that ability lies in being a good listener who can "extract the wisdom from other people's statements no matter how they are expressed." The lead director must be especially adept at synthesizing the messages that emerge from executive sessions and accurately communicating them to the CEO in a way that is non-confrontational.
6. Build consensus.Acting as an honest broker when it comes to communication doesn't mean that the lead director remains eternally neutral. A board is not a debating society and at some point issues must be resolved. In many cases, delay is detrimental and the lead director performs a valuable function by building consensus on particular issues and enabling the company to act. Forward Air, for example, has made consensus-building skills one of the specifications for the position of lead director in the future. The arena for using those skills might be executive sessions or private conversations. In either case, Hernandez says, "you have to be willing to invest a lot of time talking with all of the individuals involved." Adds Chain, "The lead director must know how to work one-on-one behind the scenes and gain support for doing what's right—it could be over the phone or over lunch, but you have to work it out."
7. Maintain humility.Humility means resisting the temptation to try to act as a kind of "director of directors," says Newlin. It also means knowing where the dividing line is between overseeing and managing, especially in executive sessions, says McNeill. Believing that particularly outspoken people are wrong for the lead director role because they can sometimes intimidate other board members into silence, Hernandez says he is careful not to speak up first with respect to an issue under discussion. McNeill, in his role on the board of Portland General Electric, makes it a point to speak last, because of his position as chairman and because he is the sole member of the board with utility industry experience. Newlin believes that the lead director should continue to behave as any other board member would when an issue arises for discussion. Despite these differences about when to speak, the aim in each case is to take care not to inadvertently inhibit other members of the board from expressing their views.
8. Exhibit courage when necessary.Being humble doesn't mean being passive. "You may have to confront the CEO or management on behalf of the board," says McNeill, "and, in extreme circumstances, possibly replace a CEO." Such courage also extends to dealing with other board members. "Having the courage to disagree doesn't mean the lead director has to pound on the table," says Hanselman. "But it does mean making your point of view known to the rest of the group and then either working to get them to see your point of view or changing your view, if that is what is clearly required."
These characteristics by no means exhaust the qualities that lead directors need. Our interviewees also cited such attributes as enthusiasm about staying abreast of governance issues, a high degree of self-confidence, and facilitation skills. But, taken together, their observations suggest that it is the interpersonal skills of the diplomat that are paramount for helping directors and management find mutually acceptable solutions to common challenges. And because these skills are so subtle and don't always come with the job description, it is hardly surprising that choosing a lead director can be one of the most difficult decisions a board can make.