The Cunningham Option

The Cunningham Option

Reprinted from NACD Directorship by Elizabeth Ghaffari | April 7, 2015 More than 80 percent of all board seats are held…

Reprinted from NACD Directorship

by Elizabeth Ghaffari | April 7, 2015

More than 80 percent of all board seats are held by white, male directors who are, on averge, 65 years old. Most of the current proposals to expand the number of women and minorities on corporate boards focus on changing the minds of currently sitting directors or the culture of the corporate boardroom. The long shot of the U.S. Congress passing legislation mandating that boards have some minimum percentage of women and minority directors is distant, and other ideas, such as quotas, seem just as unlikely to pass.

Even the commonly-quoted, and far more tangible, solutions to this problem have failings. Board candidate registries and diversity databases are passive talent pipelines that do not permit company board members to know much about a candidate’s performance in a real boardroom setting. While director training programs may be seen as adequate sources of preparation and exposure for director candidates, most attendees are established directors, and networking opportunities at these events provide a limited window on the capabilities of the emerging governance talent in the room. Although service on government commissions or non-profit boards may be seen as adequate preparation, these sectors have distinctly different mission motivations, economic drivers, and performance criteria compared to public or private company boards.

Jeffrey M. Cunningham suggested an interesting solution to improving diversity in the boardroom in the January/February 2015 issue of NACD Directorship magazine. Now retired from years of service as senior advisor and managing director of NACD, Cunningham, in a farewell interview with NACD Chief Knowledge Officer Alexandra R. Lajoux, said:“To fix the talent pipeline … [a company could set up] a well-compensated and highly talented advisory board of women and minorities in mid-career stages.” Cunningham’s idea has merit, and we would honor his career contributions well were we to evaluate, discuss, and seriously consider his recommendation and their implications.

First, he recognizes that the problem of diversity begins with the talent pipeline. Is the problem that there are not enough competent and experienced candidates who are ready, willing, and interested in board service? Or not enough candidates who have been selected by other companies for a “first-board-experience”? Or is it that the board does not have exposure to the pipeline of talented candidates because there is no motivation to talk, network, or even know about that pool of director peers? Boards must choose the way they want to define the problem, then provide more—and better—opportunities for candidates to pass through that particular gauntlet. Alternatively, boards can provide more—and better—ways that boards can broaden their contact and exposure to that talent pipeline actually experiencing governance challenges.

Some say that directors only want CEOs, financial experts, CFOs, or profit and loss (P&L) leaders such as COOs to be considered for a board role. Cunningham is suggesting, correctly, that there are many talented resources in top- or mid-level career positions in law, technology, human resources, global management, and sustainable operational positions—to name just a few—who could augment the board’s intelligence if only directors would do a deeper dive into the leadership candidate-pool.

The “Cunningham option” would incentivize mid-career professionals to learn about governance, first-hand, in a board advisory role defined by directors to help the board meet their ever-increasing challenges in the areas of risk-assessment, global audits, technology, and cybersecurity, to name a few areas where boards may say they don’t have enough information. Paying advisors is a no-brainer if boards want (1) quality candidates (2) excellent input and advice and (3) the ability to hold advisors accountable. Boards pay a host of other company advisors—auditors, security analysts, compensation advisors, among others. Adding governance advisors from top- to mid-career domain experts expands the talent pipeline by providing these experts with real-world exposure to the board’s needs. This makes eminently good sense. The failure to compensate advisors would mean the board holds advisors’ expertise in low esteem, while candidates are not likely to take a one- to two-year governance sabbatical without compensation. Advisors would need to be compensated enough to motivate the dedication of time and effort to a governance journeyman role. Remember: even law clerks and medical residents get paid for their work.

Advisors would need to be held accountable to the same fiduciary duties and responsibilities as a director. Any advisor entering the boardroom should be held to those standards, required to avoid conflicts of interest, and commit to ensuring the privacy of deliberations. Under the “Cunningham option,” boards would seek the assistance of advisors who could reduce demands on directors’ time,  improve the board’s understanding of complicated governance-related topics, and respond to specific board needs for data and/or interpret information.

Advisors to a company board need not necessarily come from only the company’s own executive pool. This is probably one of the trickiest aspects. How do you speak openly about corporate governance and strategic business with advisors who were employed by other businesses? Interestingly enough, we do not ask that question of sitting directors who are tapped from outside the business sphere or inside the competitive circle. Typically, we use the expectations around duties, fiduciary responsibilities, and protection of privacy in the boardroom to resolve those issues. The same should be possible with board advisors.

Cunningham also said: “Their job [as board advisors] would be to counsel the board on what is happening in their respective communities.” “Their respective communities” could mean the advisor’s domain of expertise—say, social media or cybersecurity—or the stakeholder communities that surround every company, either domestically or globally. The important consideration is that advisors’ would “counsel the board” in any area that the board deemed it required.

There is no comparable way for top- or mid-career executives to gain actual company governance experience. Many times, this author has asked executives to name their own company directors or describe an interface with one or more individual directors. In my experience, executives typically have no knowledge of the directors currently sitting on the company’s board, what their areas of expertise are, or what knowledge gaps exist. The “Cunningham option” encourages both directors and executives to look outside of their silo of expertise and seek out mutually-beneficial opportunities for governance growth and learning.

In baseball, team managers recruit specialized talent for key roles, such as pitcher, batter, or shortstop, while all other base and field positions generally can be filled by more general-purpose players. In like manner, boards recruit key talent such as former CEOs, financial experts, certified financial planners, or key P&L leaders such as operating unit COOs. Those top tier positions are relatively well known in the marketplace, although women and diversity candidates still are few in number even there.

Baseball has a farm team system where the minor league mirrors the major league system so that managers can see talent perform in the same capacities as will be required once candidates advance to professional levels. There is no comparable “journeyman apprenticeship” role in the company governance field.

The “Cunningham option” envisions an active search process by boards for expertise, talent, and competence that would complement the work that directors perform and would give advisors real-world exposure to the challenges and deliberations of real-world governance professionals.

Cunningham recognizes the ultimate value of this enhanced, proximate, advisory pool when he notes that: “The ulterior motive, of course, is that as board openings occur, there is a ready pool of outstanding candidates.”

Board turnover or refreshment is a well-recognized contemporary problem in governance and one which is not likely to change quickly. Board assessments, which are one way of trimming so-called deadwood, have been slow to be adopted at best. The “Cunningham option” puts fresh, new talent right into the boardroom by helping the board reach beyond its current competencies and address heretofore ignored issues or solutions.

Jeffrey Cunningham has the best interests of corporate boardrooms at heart. He also recognizes that boards can only ignore half of the talent in the total marketplace for a brief period of time before US corporations begin to falter. The “Cunningham option” provides an intense learning experience for both directors and candidates. If this concept is designed well and implemented with care, the “Cunningham option” could provide the solution to a deeply-ingrained problem that we all know must be addressed sooner or later.

Elizabeth Ghaffari is the president and CEO of Technology Place, a technology consulting business she started in 1989. She also has fifteen years’ experience in corporate data processing, operations, economics and project management in the U.S. and abroad. Ghaffari applies her governance research and analyses, through Champion Boards, a service of Technology Place, to advocacy and advisory consulting with businesses and entrepreneurs who want to build boards as a tool to foster effective strategic planning and promote business growth. 

Reprinted with permission of NACD Directorship

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