How To Time Board Candidate Selection

This has quite possibly been the most hectic, unpredictable and surprising season for board succession that I have experienced, since representing our first independent director client, Lou Testoni, close to nine years ago. While I typically rely on the premise of introducing our client to a potential board opportunity six to nine months before proxy, I am witnessing a very different board succession dynamic over the last several months.

Where once would assume a board resignation announcement occurring so close to proxy or the annual meeting means no succession opportunity, it is not the case – there is opportunity.  In most public announcements, the reason for the resignation is very clearing shared, such as a conflict, over boarding, or illness.  Most state that it is not in any disagreement with the company.  But, when there is no statement as to why, one starts to wonder if there is an opportunity.  We are finding in many cases there is.

So, why all this change? Board participation is not what it used to be. The more cushy days of serving on boards is coming to an end. It is involving increasing amounts of work that the executive did not initially expect. In many cases, it can suddenly feel like a full-time job.  Perhaps the executive can’t handle this new dawn of workload.  More so, perhaps the executive is not pulling their weight.  Therefore, sudden and unanticipated changes to board composition.   Amongst all this new dynamic, change and new dawn, perhaps the following will help to shed additional light on the timing of board candidate selection.

Capturing your first or even second board seat can take a very long time, a lot of persistence, perseverance and patience.  It may have happened for your friend, colleague or neighbor faster than it is happening for you.  If your reason for serving on a corporate board is to compete with your contemporaries or serve your ego, you should not be seeking independent directorships and companies should certainly not be considering you.  So, take a step back and be really be honest as to why you want to serve on corporate boards.  Once you answer that, then you can start figuring out how to time board candidate selection.

So, how does one time board candidate selection? Is there a playbook for how to land your first board seat? I find that the majority of executives who aspire for corporate boards seats, lament that a trusted, tried and true playbook does not exist.  So, how do you get clarity and sort through how the timing for selection of candidates for independent directorships really works? How do you crack the code?

While this post will not have all of the answers, I hope this serves as a bit of insight through what I have learned through my practice of representing executives for independent directorships and building a portfolio of boards on their behalf.  As I navigate this maze of board candidate selection, I have realized only 16% of board opportunities ever leave the board room.  In fact, 84% of the time the decision and selection is made by insiders around the board room table.  When activist investors add board members, they put their own in and hence there is a fight.  Because the Fortune 50 use more traditional approaches, I believe ideal target is in the growth, mid-market revenue range. The board director opportunities are in the $500M to $5B companies.  So, how does the typical timing play out?

Public Companies

Just about every executive I speak with, aspires to a publicly-traded corporate board seat.  Even with all of the risk and exposure, they have this as their brass ring.  So, how can they make it a reality and maintain the right set of expectations?  For me, the answer is simple – by understanding timing and having incredible patience, persistence and perseverance.

There are two seasons for public boards – May and October. Under typical circumstances, for an independent director to be elected to a public board in May, their candidacy and the process should begin in October of the previous year.  The initial discussions start in October, followed by evaluations of the candidate pool in November/December, and ultimately candidate interviews and selection in January/February.  The candidate is then selected, a proxy is generated and sent to the shareholders.   In May, the candidate is elected to the board.

In the October season, the process simply reverses by seven to eight months. Internal searches use the same process as outlined above but may be one to two months less in time.  It is imperative for executives to build intelligence on when board seats are being vacated or when a term is expiring by looking back at previous proxies.

If there is a death of a board member, the by-laws of the board will allow for the board to elect a conditional board member.  That member will most likely be elected again at the next annual meeting.  Unrelated to a death, boards will not accept sudden resignations because each board member has or should have a unique value. The board cannot afford that gap in if there is a resignation. Expertise in audit, risk and compensation currently offer great opportunity. On the board of NASDAQ companies, three financial experts are required.  If there is a resignation, that is an opportunity.

Privately-held Companies

Where the public board process appears arduous, privately-held boards are really no easier to navigate.  Although “proxy season” is not a factor the selection process still difficult to time.  I have experienced cases where a candidate perseveres a dozen interviews over an eight-month period.  Other cases include family-owned boards where decisions can be made very quickly and the process only takes two to three months. The answer to private-held timing is – there is no seasonality.

Private Equity Portfolio Companies

When I place an independent director on the board of a private equity-owned portfolio company I find a similar process to public companies.  With that being said, the private equity arena can be much more spontaneous.  When in deal due diligence they are already evaluating the current board members and determining who they will keep and who they will release.

Some private equity groups do not involve independent directors at all, so there is no opportunity.  Other private equity groups will replace an entire board.  It is one of the most complicated arenas to navigate. If the private equity group does engage independence, they will have a stable of candidates that they already vetted, know or their network will know.  On a moment’s notice, the candidate will be contacted and elected to the board.  Every seat has a specific need –  expertise, skillset, or industry knowledge.  My answer for this group – build relationships with private equity groups early and often.

Whether publicly-traded, privately-held, or private equity-owned, your network is key. It needs to be expanded beyond the typical suspects.  Outside counsel and bankers tend to be a great source for networking into board opportunities, as they are trusted advisors to these companies.  Whether you do it yourself or retain an agent, you must brand your value, create a strategy and plan and execute with great abandon.

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