In 2022, 395 board seats at S&P 500 companies were filled by a new director. Board refreshment is inevitable for any corporate board. There are several reasons prompting the appointment of a new board member, including the retirement of a director, replacement of a board member, or even expansion of the board. Over the years, the importance and role of the board at organizations have been highlighted. The difference between having a mediocre, good, or great director on the board can have a substantial impact on the company’s performance.
The rules of the game
In general, boards need to refresh themselves to remain relevant, i.e. effectively challenge management and make meaningful and constructive contributions to the strategy. While usually considered a binary action, refreshment strategies are not limited to removing an existing member from the board and/or adding a new board director. In a broader context and depending on the circumstances, boards should invest in optimizing the talent that is already present and keep the board “fresh” through courses, seminars, or summits, for example. However, there always comes a time when a spot around the board table becomes vacant and an appointment is due.
Corporate boards have always been careful about the intake of new directors. Rightfully so. In the past, a board seat often used to be assigned for life until the board member retired or deceased. To this day, a minority of corporate boards have board refreshment policies, like term or age limits, in place. The annual Corporate Directors Survey by PricewaterhouseCoopers confirmed that serving directors are not fans of these policies either. Even though 48% of surveyed respondents thought at least one of the current board members should be replaced, 70% reject term limits, and 62% feel an age limit of 72 or younger for board members is not a meaningful board refreshment policy.
New expertise for a changing world
The last few tumultuous years have caused an acceleration in the appointment of new board members. The accumulation of the pandemic, the climate crisis, the digital transformation with increasing cyber threats, and fast-evolving technologies like artificial intelligence showed the need for new expertise around the boardroom table. The general shift from shareholder to stakeholder governance has also stimulated the reconsideration of the experience and background needed on a board regarding ESG and DEI. In many cases, these new competencies deemed necessary around the top table are found in first-time directors.
Similarly to the year before, just over one-third (34%) of the 395 newly appointed directors at public company boards in 2022 were people who had never been on a corporate board before. Three-quarters (75%) of the 2022 class of first-time directors are still actively employed, and almost one-fifth (18%) of them are under 50 years old. These statistics show that board composition is in flux.
Always learning
Even though there are more opportunities than ever for first-time directors, the bar isn’t lowered for them. The opposite is true. Being a successful director demands a certain mindset, curiosity, and commitment. It also requires a comprehensive understanding of the topics discussed inside the boardroom. Moreover, bringing in a new board member inevitably changes the dynamics within the boardroom. This underscores the importance of solid social skills and networking capabilities. When looking for a new director, boards search for this mix of soft and hard skills. Aspiring board members, as well as directors already holding a position benefit from continuously updating their skill set and knowledge in all fields relevant to the corporate board of 2023.
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