There are a number of ingredients that go into making a board truly successful.  Of them, I believe a relevant board composition, a collaborative culture, and highly committed board members are three of the most important success factors.

Composition
My colleagues and I spend a great deal of time advising our clients on their board composition and recruiting directors who best meet their criteria.  What has become even more important than ever is for directors to be relevant to their boards and the corresponding companies through, for example, contributing relevant experience (e.g. industry, international, regulatory, government, academia, etc.) and/or skills and expertise (e.g. financial, manufacturing, marketing, technology, etc.).  By definition, boards govern corporations with shareholders’ best interests at heart.  Yet, to be even more value-added to its constituents, including shareholders, management, employees and fellow directors, boards should be comprised of directors whose combined collection of backgrounds, experience and skills are relevant to and therefore align well with what the company does, its strategy, opportunities and challenges.  While this sounds obvious, if you were to review a wide collection of boards, you might conclude otherwise.

The board could therefore better assess how the management and the company are performing and more effectively probe and ask the right questions.  Just as important, relevance enables a board to be a much more effective strategic discussion partner with the CEO and his or her executive team.  For instance, a company is in the process of expanding into China and is making a big investment and commitment of talent to this major initiative.  It would be very helpful to have on the board an active senior executive who has successfully built and led her company’s Far East operations and who can provide a value-added perspective on what was learned in the process and what her team is seeing real time in that region of the world. Such examples are potentially endless.  In addition to the CEO, other members of the senior management team could reach out to specific directors with equally important types of topics to discuss. 

When thinking about composition, “employed versus retired” are very important attributes.  Boards should be comprised of both types, and there’s no specific formula for how many of each a board should have.  It depends on what a board is looking for in each of its directors.  For example, a board seeking a real-time perspective in a certain industry or region of the world would likely prefer a director who is an active senior executive or CEO than a former senior executive who has been retired for a number of years. Financial expertise could be gained from a retired financial expert.  However, the board might benefit even more from having an active and multi-dimensional public-company CFO who is very involved and current on what is going on in the financial and accounting world on a real-time basis.  Given the ever-shrinking pool of active CEOs who have capacity for board service, retired CEOs are a logical alternative.  The composition of active versus retired directors can therefore be somewhat unique to each board. 

Culture
A board should possess a culture that is based on independence of thought, collaboration, honesty, mutual respect and transparency.  Oversized egos and prima donnas who demand attention and like to hear themselves speak are seldom, if ever, welcome.  Arrogance and distain for others’ opinions can be quite destabilizing to the group.  Accomplished at a very senior level, balanced, doesn’t take him or herself too seriously but does take the role of being a director seriously are key foundational attributes of the types of directors who can foster the ideal board culture.  Along those lines, additional ideal director attributes include but are not limited to:  high intellect, the highest integrity, sound judgment and good old fashioned common sense, team player, ability to challenge in a constructive way, calm under pressure, think strategically and get down into the weeds when absolutely necessary.  When bringing a new member on to a board, it is critical to assess him or her for these attributes, while taking multiple references. 

Commitment

Board members have to possess a strong level of commitment and corresponding work ethic.  They are expected to prepare for and attend all board and committee meetings (both in-person and telephonic).  But often, more is required of directors.  Major corporate events (e.g. a major reorganization/restructuring, merger or acquisition, etc.) can yield many more in-person and telephonic meetings than anticipated. As part of the succession process, board members can be asked to meet with and get to know high potential senior executives, sometimes outside the normal board meeting schedule.  I have known of boards where directors are asked to mentor up-and-coming stars, meeting with them on multiple occasions throughout the year.  Directors can also be asked to visit different company site(s) annually.

The point of this is that when serving on a board, there is a certain amount of unpredictability and an unwritten requirement to go above and beyond the call of duty when the need arises.  While directors may not have the time or necessarily the capacity for the additional work, they have to pull their own weight, particularly in moments of crisis.   At the end of the day, a board is “in it together.”  If there are director(s) who choose to do less than they’re asked, then the board’s effectiveness and the collaborative and team-oriented aspect of its culture well may be compromised.
  

Carter Burgess is a Managing Director and Head of the Board Practice at RSR Partners, a leading corporate board and executive recruiting firm founded in 1993 by Russell S. Reynolds, Jr., based in Greenwich, CT. The firm partners with both public and private companies across a wide variety of industries including financial services, healthcare, industrials, consumer/retail and technology.

James W. Gauss is Chairman of Board Services at Witt/Kieffer

Why turn to directors? Especially when they’re new, CEOs have few places to go for advice. For CEOs-in-waiting, company executives will certainly offer guidance, but their agenda may not always be aligned with the goals of the enterprise. Other CEOs can offer advice from their own experience, but these, too, may not be relevant to new CEOs’ situation. Directors, in contrast, have independence and a good understanding of where the company is and where it’s going.

In making decisions about their top teams, CEOs have to consider different factors than they did even 20 years ago. Odds are, for example, that a new CEO will not also be named Chairman: In 2001 in North America just over half of incoming CEOs held both titles, a share that fell to just one in ten in 2010. This shift gives CEOs time to take on more direct reports. Indeed, CEOs now have on average twice as many direct reports, up from about 5 to about 10, and 4 out of 5 of the new positions are functional, rather than general management positions.

As directors counsel CEOs on building the right team, there are number of factors you should consider: whether the CEO is also chairman or not, the degree of cross-organization collaboration required, and the burden of activities beyond the CEO’s span, such as spending time with customers or regulators. In my experience, however, the most significant factor is how long the CEO has been in the position. There are 3 relevant stages in a CEO’s life cycle:

Stage 1: During the first 12-18 months of tenure, CEOs are assessing executive talent, figuring out how to lead the team, and charting the strategic direction. If the new CEO was the COO, he or she is unlikely to replace that role right away. And new CEOs want a full set of voices at the table to bring the full spectrum of perspectives to strategy development. During this stage, the target span of control is typically 12 to 15.

Stage 2: The “steady state” after the first 12 to 18 months and before preparing for succession is where the most common pitfall lies: Too often CEOs populate their team with the usual suspects—people included based on how many employees or how much revenue they control—even though the company has developed a new strategy. CEOs should turn this logic on its head and start with the capabilities and roles needed to push the strategy forward. From that basis, the best CEOs delegate control of mature areas of the business to strong leaders. They then elevate people in functional positions essential to the strategy, often bringing new CXOs to the table. During this stage, target span of control is typically 8 to 10.

Stage 3: In the last 12 to 18 months in a planned CEO succession cycle, executive development takes center stage in a search to find the next CEO. Generally the CEO, with the counsel of directors, puts one or a few people into positions with significant P&L responsibility and consolidates many elements of the business under them. During this stage, the CEO’s span of control should fall to 5 or 6.

As a director, you are integral to helping your CEO understand the differing needs of these three stages. CEOs will appreciate it if you raise these issues, particularly because new CEOs may be reluctant to reach out to the board for fear of appearing less than confident. In later stages, directors’ reaching out is equally important because some CEOs may prefer to manage issues, particularly those related to succession, alone.

Gary L. Neilson is a senior partner in the Chicago office of Booz & Company.

That 2012’s successful shareholder proposals have involved procedural rules such as board declassification and majority voting is in keeping with recent trends.

Such corporate-governance related proposals, not involving executive compensation or social or public-policy issues, thusfar constitute a majority of all shareholder proposals in 2012, a higher share than that seen recently. Proposals relating to executive compensation remain far less frequent relative to their levels before 2011, when executive compensation advisory votes became mandatory for all public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

2012’s early returns involving such say-on-pay votes demonstrate the substantial role being played by the nation’s largest shareholder advisory firm, Institutional Shareholder Services (ISS), in such voting. While no Fortune 200 company has seen shareholders reject executive pay packages in 2012, the four companies to have received the lowest percentage support—Johnson Controls, Navistar, Qualcomm, and Walt Disney—each received “no” vote recommendations from ISS on their executive pay plans. On average, these companies received 64 percent support from shareholders in say-on-pay votes, as compared to an average 94 percent support for other companies meeting by mid-March.

Since ISS’s position almost certainly helped to influence the markedly different shareholder votes on pay packages, it would seem that an unintended side effect of Dodd-Frank-mandated say-on-pay votes is to give the proxy advisory firm a major “gatekeeper” role over executive pay. ISS’s strengthened position might be enhanced further if institutional investors heed its newly promulgated advice to challenge management to respond whenever fewer than 70 percent of shareholders approve of board-proposed compensation packages—a position that would seem to be rather self-fulfilling given ISS’s influence over the votes in the first place. Given that many of ISS’s clients are labor-union pension funds and social-investing funds that may be motivated by issues other than maximizing shareholder value—and have respectively sponsored one-third and one-fifth of all shareholder proposals to date in 2012—I’ll be watching the proxy advisory firm’s role closely.

What else will I be watching in the upcoming annual meeting season? I’ll be paying particular attention to certain classes of shareholder proposals in which union and social funds have taken a special interest:

• Proposals related to corporate spending on politics and lobbying (looming for Citigroup on April 17, Honeywell on April 23, BB&T and IBM on April 24, Johnson & Johnson on April 26, AT&T on April 27, and UPS on May 3), which have been increasing in number—though not getting majority support—in the wake of the Supreme Court’s 2010 Citizens United decision affirming First Amendment protection for corporate political speech;

• Proposals calling on the company to separate the positions of chairman and CEO (looming for Bank of New York Mellon on April 10, Honeywell on April 23, General Electric on April 25, Johnson & Johnson and Lockheed Martin on April 26, and AT&T on April 27), which have been pushed hard by union funds and certain shareholder activists; and

• Proposals calling on the company to grant proxy access to shareholders nominating directors (looming for Wells Fargo on April 24), which are reappearing on this year’s proxy ballots after the D.C. Circuit last summer rejected the mandatory proxy access rule proposed by the SEC.

Check Proxy Monitor during the annual meeting season for my ongoing analyses of these and other issues, as well as our up-to-date scorecard of scheduled meetings and voting results.

James R. Copland is the director of the Center for Legal Policy at the Manhattan Institute, which hosts a database of all Fortune 200 companies’ shareholder proposals, ProxyMonitor.org.

If you believe the media, the boardroom is a battlefield where chief executive officers (CEOs) and directors are locked in combat over the leadership of the organization. While some high-profile CEOs have poor relationships with their boards, most don’t fall into this category –and the ones who do are simply those that make for good press. In fact, according to RHR International’s CEO Survey Snapshot, 98% of U.S. CEOs report having good relationships with their boards of directors and 95% say they believe their board supports them in the majority of decisions they make. 

Based on the responses of a select group of CEOs, the survey indicates that boards are a fruitful source of feedback and support for CEOs, with 96% of participants saying they can speak honestly with certain directors about their performance and the impact of their decisions. Fifty-nine percent cite the board as their most helpful source of feedback. The lead director emerges as CEOs’ key board confidant; with 50% of chief executives naming this board member as the person they trust to discuss their own performance and key decisions. 

This data confirms what I have learned in my career about best practices in board/CEO relationships. CEOs and boards must work together in a balanced environment that includes not only board oversight, but collaboration – and the lead director is often the engineer of this healthy balance. They promote consensus among board members, become a trusted advisor to the CEO, and create alignment between directors and the CEO. To manage these forces and steer things in the right direction, an effective lead director must consistently employ good judgment, keen insight, and deep wisdom. 

When will lead directors most likely need their “A” game? That would be when it comes time to select a replacement for the chief executive officer. This is the one area where the survey showed that even good board/CEO relationships can begin to break down. Through research and experience, RHR consultants have found that succession planning is full of complex psychological nuances, such as the incumbent CEO’s readiness to step down. The degree of willingness to discuss the issue, combined with other equally challenging elements, can make the succession process very difficult for both boards and CEOs. Many chief executives reported that miscommunication with the board about selection decisions and responsibilities are the most difficult part of the succession process. Additionally, the majority of CEOs feel left out of the loop: 76% of CEOs believe they should be more involved in planning their own succession. 

To be effective, CEO succession requires a well-defined course of action that ensures a supply of highly capable candidates ready to assume the chief executive position whether through an unexpected event or a planned transition. Successful companies realize that this requires that CEO succession should be an on-going program, not an event. They manage the process well in advance with a clear set of procedures, roles and milestones that minimize the friction that can occur when the incumbent chief executive and the directors are not aligned on their respective responsibilities. 

When is the foundation of a successful board/CEO affiliation laid down? In our experience, a solid relationship between the board and the CEO begins before day one. As soon as a new CEO is selected, the outgoing chief executive should orchestrate formal and informal meetings between the successor and the directors. Boards should make an extra effort to be proactive and deliberate in supporting a new CEO; they should not wait for the CEO to come to them. In a group and individually, board members should initiate contact and be intentional in their approach. An open door policy is not enough. According to a recent joint RHR International/Corporate Board Member study on leadership transitions, incoming CEOs highly value board clarity, alignment and a mutual understanding of how their performance will be evaluated. 

It is essential to have alignment between the new CEO and the board on the organization’s future strategic imperatives. To set the stage for an effective partnership, the incoming chief executive and board members should have frequent interactions in which they share thinking about strategy (as well as their own personal experiences in the CEO role). This will prevent the new CEO from falling into many of the common pitfalls experienced during a changeover. 

While the CEO Snapshot Survey indicates that the majority of relationships between chief executives and board directors are harmonious, this rapport should not be taken for granted. As in any relationship, trust, alignment, planning and communication are the keys to ensuring that the association remains solid and productive for years to come.

Michael W. Peregrine is a partner in the law firm of McDermott Will & Emery

Been paying any attention to the conflicts controversy involving the former SEC General Counsel? You know, the one where the guy made seven separate internal conflicts disclosures, but it wasn’t enough to satisfy the Commission’s internal watchdog? You remember that one? Well, if you haven’t been paying attention to it, you should because it serves as a “head’s up” that we may be headed into a brand new conflicts of interest environment. One in which a higher level of attentiveness, disclosure and diligence may become the order of the day for boards.

What? That’s a bit of a stretch, you say? That how a federal agency handles its internal conflicts problems has anything to do with how corporate boards handle their own affairs? Well, hold on for a second. Understand that we’re operating in a corporate accountability environment, in which officers and directors are increasingly being held responsible for harm committed both to –and by—the corporation. Folks are mad, they’re looking for someone to blame, and the boardroom is as good a place as any to go looking for villains. So, if you don’t think that corporate governance regulators aren’t following this story, and wondering how it applies to their jurisdictions, think again. They are—and maybe they should be, as well.

So, we need to pay attention to what’s really at stake in this matter. Not about who is right or who is wrong; about which arguments have merit and which don’t. Let’s leave those to the process of justice. Rather, boards should focus on the veritable “Big Picture:” what this controversy is telling us about where conflicts of interest scrutiny may be heading...and what boards should be doing about it.

Because, somehow, the old ways might not be enough anymore. It might not be enough that the director is widely admired for his service. That he’s totally transparent about his financial interests. That neither he, nor the board chair, nor the compliance officer, saw the potential for conflict. What might matter is that others (including fellow directors and executives) might see it differently, that they might complain, and that the complaint might have wings. And reputations—both individual and corporate—can get tarnished as the mess works its way through.

And just what should boards do in response? Well, kick the tires of its existing conflicts policy, hard. Start with the nomination process. Are we picking nominees who are prone to conflicts? Move to education—what duty of loyalty lessons are we giving our directors? Then turn to disclosure—how often, how detailed, and with what guidance is it made? How hard, how far, how “creatively” are we looking? Don’t forget the actual process of review—who is making the actual “conflicts call,” how “independent” are they, what criteria are they using to make decisions? And even when it seems OK to do so, have we the tools and the will to effectively “manage” a conflict without creating more problems? Just when is basic recusal the safe play?

And while you’re looking at it, check out the internal reporting requirements of your key legal and compliance executives. Do they contain seeds of what the government might regard as conflicts? Is the compliance officer reporting to the general counsel or CFO, as opposed to another senior officer? Does the general counsel report to the CFO, as opposed to the CEO or COO? Do both the general counsel and the compliance chief have the independent access to the board?

This is not to say that the “conflicts sky is falling;” that the criminalization of conflicts of interest is on the horizon; that your approach to conflicts must be turned upside down. We’re not there. But this SEC mess is a gift of sorts, a no-cost prompt to boards to take a close second look at a very important governance policy. Because there’s absolutely no “down side” to doing so, and you may be doing your board, and the corporation, a very big favor.

The term "best practices,” however, suggests a rigid discipline or "one-size-fits-all" mentality that does not always work. Certainly, in many contexts, this thinking is very useful. But in others, not only is it unhelpful, it can be harmful over the long-term. Nowhere is this probably truer than in the area of corporate governance. Of course, no one is against any company following strong corporate governance practices. Nor is there any inherent harm in the use of the phrase "best practices" when referring to corporate governance—after all, it's just a two-word phrase.

The problem, however, is the emerging mentality symbolized and reinforced by this phrase. There are those—and the universe is growing—that believe there are a set of corporate governance “best practices” that should be followed by every company. Now, in fairness to this burgeoning group, they would never go as far as to posit that if a company follows a set of corporate governance best practices, all will be well and investors will live happily ever after.

The practices they are insisting upon, however, are far too often accompanied with a naive understanding of what it means to oversee the operation of a company in a complex global economy. This perpetuates, perhaps unwittingly, a way of thinking that excuses the creative thinking, nuanced decision-making and tough judgments that underlie a director's fiduciary duties. It runs the risk of pushing boards toward more robotic-like process, undermining the reasoned risk taking and innovative corporate culture so vital to a dynamic economy.

Let's consider two examples—one moving in a negative direction and the other in a positive direction. First, on the negative side, is the growing trend toward separation of chairman and CEO at all companies at all times. Now, being in favor of separating the chairman and CEO role is not inherently problematic. And, certainly, separating the two responsibilities might be a great practice for a given company at a given time.

But, calling it a "best practice" for all companies at all times does perpetuate a way of thinking about governance that grossly oversimplifies the complexities of governance, unnecessarily removes discretion from directors in how they manage the affairs of the board and shifts the focus from the most critical issue at hand: ensuring that every board has policies and practices in place that provided—both on a regular basis and in times of crisis—that an independent director takes on a leadership role to make certain there is a clear path for raising and addressing issues that are not best suited to be addressed by executive management. The application of these policies and practices can be very fact sensitive and necessarily require an assessment of the strengths and weaknesses of the individual directors as well as their experience and qualification for handling the responsibility.

The second illustration concerns efforts to keep directors informed about and up to date on the topics that are vital to their board service. Fortunately, there have been some positive developments on this front. Up until several years ago, ISS considered director education in its governance rating system, but the cost to monitor this became too great for ISS and dropping it had no negative impact on its revenues. The problem was not that ISS was promoting director education. Indeed, directors’ keeping current and informed is fundamental to satisfying their fiduciary duties. Rather, the problem was that ISS's governance rating was—and, unfortunately, in many other areas continues to be—a rigid, "one-size-fits-all" approach.

This, in effect, diminished the importance of education by turning it into a "check-the-box" exercise to get a favorable ISS rating rather than a thoughtful process about the specific informational and educational needs of the individual directors in the context of the opportunities and challenges facing their company.

Corporate Board Member's database of more than 5,000, mostly public, U.S. companies includes more than 33,000 individuals serving on the boards of these companies. This offers a rich mix of experiences, qualifications and educational backgrounds and demands an equally rich array of educational opportunities. ISS’s waning influence in this area presents issuers a new opportunity to develop a better—but not "one-size-fits-all"—practice: in connection with the discourse of the experience and qualifications of directors, enhance the disclosure concerning the board's policies and practices for ensuring that directors have access to appropriate educational and informational resources.