For both public and private companies, it’s important to determine the skills and other attributes needed to form a good or, hopefully, great board. Of course, there are basics that always apply, such as integrity, intelligence, and a good mix of collegiality and candor. However, once you get past those basics, it’s desirable to figure out what the organization really needs. If the company has a consumer-facing business, you probably want to have a director or two with experience in that and related fields, such as marketing. If it’s a defense contractor, you likely need someone with expertise in government relations. And so on. However, in searching for and, hopefully, finding those board members, it’s also desirable to find individuals whose abilities extend beyond a single area of experience or expertise.
The notion of avoiding such “one-trick ponies” came to me while reading an article in a recent article in the Financial Times. Since a subscription may be needed to access the article, the headline reads “US companies urged to appoint Covid-19 experts to boards.” In fairness, the headline was a bit misleading; the article itself said that “the dean of Harvard’s school of public health has called on companies to put public health professionals [i.e., not Covid-19 experts] on their boards… to manage a pandemic threat that could hang over businesses for years.”
Even so. In recent years, people in the governance field (and, apparently, now the public health field) have made suggestions as to the specific “must-haves” that companies should add to their boards. For example, take cyber-skills. There is legislation pending in the US Congress that would require companies to disclose whether any board member has “expertise or experience in cybersecurity” or, if not, how the board has taken “cybersecurity steps” to address the company’s needs. This “comply or explain” approach may have its merits (and its supporters, generally including me), but when it comes to board composition, what usually happens is that companies put someone on their board with arguably appropriate skills rather than admit that it doesn’t comply or try to defend its position.
This has happened with so-called “audit committee financial experts.” Most assume that having such an expert is required. Not so; it is perfectly permissible for a company to say “We don’t have any audit committee financial experts, and we don’t think we need any because…”. But I am not aware of even one company that does that, for the reason stated above. And that’s irrespective of whether having one or more audit committee financial experts really adds anything to the mix. In fact, over the course of my admittedly weird career, I’ve repeatedly seen so-called “audit committee financial experts” fail or refuse to ask a question for fear that it might reveal a bit of ignorance. In those cases, it’s up to the non-expert to ask what might be perceived as a “dumb” question. But it’s often the dumb questions that need to be asked. (Remember the story of the emperor’s new clothes?)
Aside from the “one-trick pony” problem, board size needs to be kept in mind as well. It’s not practicable to keep adding another “expert” to the board every time a new issue arises. If we did that, we’d end up with hordes of directors rather than boards of directors. Besides, a good board is one that can face new challenges without having to add to its numbers.