As I listened this morning to board members of the world’s largest companies discuss their greatest concerns, it was striking to hear how similar their challenges are to board members of nonprofit organizations.
The key topics of the morning discussion at the highly attended National Association of Corporate Directors (NACD) Directorship 2009 Global Forum were: Global Strategy & Boards, Litigation and Liability, Crisis Communications, Compensation & Shareholder Communication, and Risk Management & Product Recall Readiness. Simply translate a few words to nonprofit terms, and I could have been sitting among board members of global, national, and regional nonprofits. If you recall a few headlines (scandals) of the past few months, the similarities will resonate with you as well.
Board-building, as the centerpiece of discussions on “Global Strategy & Boards,” drew particular attention. Since this has been the focus of my work with nonprofit boards for over a decade, it was high on my agenda. George Davis of Egon Zehnder International shared his firm’s 2008 Global Board Index, showing a stunning talent gap in corporate board rooms. Among S & P 500 companies, although international revenues represent almost 37% of total revenues, increasing at almost twice the rate of overall revenue, foreign nationals represent only 6.6% of S & P directors. Only 9.1% of S & P directors have international education/degrees. And only 26.9% have had any international work experience.
Conclusion by Egon Zehnder: “A significant gap exists between the global capabilities of S & P boards and the increasing importance of the global marketplace.”
So, you say, transition boards…update them… to include directors with valuable backgrounds and qualifications to help ensure that global companies have the most robust, ambitious, and successful global strategies. Not so easy. The average board size in the for-profit sector is 11. And according to the 10th Annual Corporate Board Effectiveness Study by Heidrick & Struggles, 78% out of the 2,000 largest publicly traded companies in the U.S. do not have term limits, so once people are on boards, there is actually no easy way to rotate them off to make room for new talent. Furthermore,only 65% of boards have age limits, and that’s dropped from 75% in 2000.
Shareholders entrust the for-profit board to envision and build the enterprise for the greatest profit and return on investment. Similarly, communities entrust nonprofit boards to direct nonprofit organizations for the greatest benefit to the community.
Boards are only effective to the extent that they comprise people with the skills, experience, expertise, and diversity of perspectives and backgrounds to be able to imagine the company’s or the nonprofit’s greater potential and ensure that there is an ambitious and effective strategy to achieve success. This can only happen when boards are accessing talent from among men and women of a variety of backgrounds, and when board development and succession planning are rigorous and dynamic.