LRN Perspectives

Moving the Needle on Board Diversity: A Conversation with NACD’s Peter Gleason

September 24, 2019 LRN Corporation
 

The best way to expand the board is by adding diversity, while protecting the institutional knowledge that the board currently has.”

 – Peter Gleason

On this episode of the Principled podcast, host Ben DiPietro, Editor of LRN’s ENC Pulse Newsletter, interviews Peter Gleason, the CEO of the National Association of Corporate Directors (NACD). Peter explains how the expectations of a board have expanded over the last 10 years, resulting in the need for a certification from the NACD to prepare new board members for the boardroom. In addition, there is increased pressure on boards from investors and activists to improve board composition and to take a stance on controversial social issues. Peter also explains how Ethics and Compliance professionals can position themselves and prepare for the boardroom.

WHAT YOU'LL LEARN THIS EPISODE...

  • [0:58] How long has NACD existed and what was your journey to becoming the CEO there?
  • [1:06] The NACD has been around since 1977, and Peter joined in 2001 right before the implosion of Enron, Tyco and WorldCom, which really launched the NACD’s growth. At that time, people started to look for resources on who should be leading boards and what boards should be doing, which the NACD provided. Peter joined the organization in a research role, went on to have just about every management role in the company, and has been the CEO now for two and half years.
  • [2:34] NACD recently released a new program to certify board members. Why is this being done now and what benefits do you expect to see from this?
  • [2:43] The program is being released now because the expectation of what boards do has grown dramatically over the last 10 years. The pressure placed on boards has come from large institutional investors and media, who expect a greater focus on things like diversity, shareholder activism, and cyber security. The program is largely focused on newer board members, to give them a credential and some background on ethics before entering the boardroom.
  • [4:39] What will it take to get the majority of boards to embrace diversity, not just in gender and race, but in age and skill sets? Why has progress been so slow?
  • [4:53] Progress has been slow, first, because there’s a tremendous supply of qualified candidates that is greater than the demand, as the number of public companies has been halved over the last 10-12 years. Second, the turnover on boards is fairly slow, and NACD is pushing an increase here to improve diversity. Companies could add seats to boards now within their limits to search for a candidate within certain diversity categories, allowing for overlap with a couple directors that are retiring in two years, which also protects institutional knowledge.
  • [7:20] What role are investors and activists having in driving action on board composition and oversight, and how are boards responding?
  • [7:28] The institutional investors (e.g. Vanguard, Fidelity, BlackRock) have been driving a lot of change on boards for years, in terms of board composition from an experiential standpoint or a tenue standpoint. When there’s resistance from the board to change, that’s when you hear about it in the news. NACD recommends that boards listen and respond to the feedback from investors and activists, because they are backed by teams of analysts.
  • [10:01] There’s been a lot of focus on CEOs and the stances they take on controversial public issues. Do you see this coming for Directors, and are they prepared for it?
  • [10:14] The company needs to speak with one voice, and going forward, the boards are going to need to be involved in those conversations, and understand why the company is taking a certain stance. The CEO, company, and board are one group, who should be addressing the issue together, with one spokesperson, typically the CEO, so you don’t have mixed messages going into the marketplace.
  • [11:55] Why do you think more boards don’t have Directors with Ethics and Compliance backgrounds? What can Ethics and Compliance professionals do to make themselves more attractive board candidates?
  • [12:26] There’s a general belief that most people who make it to the board level are ethical people, so there isn’t a large push to look specifically for board members with an Ethics and Compliance background. Professionals should develop their overall business acumen in managing large parts of the business and being viewed as leaders in the organization, as well as positioning themselves as ready for the board through training and obtaining experience in risk management, finance and strategy.

    Don’t miss our next episode! Be sure to subscribe to Principled on Spotify, Apple Podcasts, Google Play or wherever you listen to podcasts.
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