The Evolving Boardroom: Finding the Right Diverse Candidates

A continual challenge we have helped our clients address over the years is how best to populate boards with diverse directors. In fact, 86% of all of our board placements over the past two years have either been gender or ethnically diverse. Data shows that diverse boards with the right combination of relevant skills and experience outperform more homogenous ones. As such, boards often overlay their diversity objectives on top of the more traditional objectives, such as requiring that the director possess the relevant skills, experiences, perspectives, and judgment needed to be successful. Achieving all these objectives simultaneously can often prove difficult and is a short-term solution that, if not managed correctly, can have a devasting impact on board performance in the long-term. Instead, identifying and cultivating relationships with potential candidates that may not be ready to join a board in the immediate term, but have the potential to serve in several years, can increase a board’s ability to achieve these objectives, ensure culture, and remain viable for many years to come. Yet, it requires discipline and a commitment to a strategic, long-term vision.

Varying Viewpoints on Diversity

As a starting place, it is helpful for directors to ascertain what they should take into account when considering how to add diversity to their ranks. A common request from boards is to find the “best candidate,” which often means the candidate that checks all the boxes at the same time – diversity and the specific skills and experiences needed – even if there is a paucity of that candidate type in their target companies and industries. Boards can broaden their definition of diversity by considering and understanding the culture and effectiveness of the current board. In addition, diversity should also reflect the board’s customers, employees, and communities. Best practice is for boards to consider what the “best candidate” is right now and also give significant thought to what the “best candidate” is in the future – for the board and the organization. Perhaps one of the criteria that seems critical right now can be postponed until another board seat becomes available. Lastly, some directors harbor concerns that they won’t have a place under a more DEI-focused paradigm, especially those with socially advantaged identities. This can create additional hurdles, however, exploring the data that demonstrates that diversity of identity leads to diversity of thought, and in turn leads to productive discussions and better outcomes, can help expand viewpoints on the importance of diversity in the boardroom.

Board Diversity and Results

According to ISS, there has been continued improvement in racial and ethnic board diversity. Approximately 86% of Russell 3000 Index companies, excluding the S&P 500, and 99% of S&P 500 companies have at least one racially/ethnically diverse board member. Additionally, nearly all industry sectors showed increased racial/ethnic board diversity year-over-year.

A new study from KPMG specifically referencing African Americans (AA) on boards states while they are still underrepresented in the boardrooms of public Fortune 1000 companies, there has been a significant increase in the proportion of these companies with at least one AA in the boardroom. Just over three-quarters (76%) of the companies studied had at least one AA director as of September 2022, compared to only 61% in 2020. However, it is still uncommon for public F1000 companies to have multiple AA directors; less than a quarter (22%) of these companies had more than one AA serving on their board. Larger companies are likely to have more AA directors than smaller companies. For the first time, all of the largest US public companies on the F100 list have at least one AA director. In fact, nearly one in ten (9%) of these companies have three or more AA on the board.

Age diversity is another factor to consider. In 2021, BoardReady released a report showing companies whose median director age was 55 or less had 10.1% YoY revenue growth compared to companies whose median director age was 65 or more which had -7.7% YoY revenue growth. That same report showed companies with over 30% of board seats held by women outperformed their less gender-diverse counterparts in 11 out of the top 15 S&P500 sectors. In addition, companies should look at geographic diversity as well as global experience.

2023 Diversity Voting Policies

ISS and Glass Lewis will generally recommend a vote against the nominating committee chair unless the following guidelines are met:

ISS
- At least one racially/ethnically diverse director at Russell 3000 or S&P 1500 companies
- At least one gender diverse director at all companies
Glass Lewis
- At least 30% gender diverse directors at all Russell 3000 companies
- At least one director from an underrepresented community at Russell 1000 companies
- Generally follow applicable state law mandates on board diversity, other than California, where such state law board composition requirements are currently being appealed

Universal Proxy Card

With the UPC, shareholders will have a greater say on the board’s composition as they can more readily compare the board’s nominees with the activist slate and focus on existing director performance, skills, experience, and diversity gaps. See this link to an RSR article on the UPC.

Succession Planning Process

There are multiple ways to address a lack of diversity in the boardroom, but all of them require continuous attention – a board should not stop seeking diversity once they have achieved their immediate “target.” Ideally, boards should seek to surpass the minimum requirement and help set the stage for the future, both within their own organization and to be a leader in the industry. Some possible approaches to improve boardroom diversity include:

Creating a pipeline of future potential candidates (who are not ready to serve on a corporate board yet but meet the diversity and potential skills and experiences requirements), then strategizing how to develop a relationship with them and help them become “board ready.” One apporach is to have potential candidates serve on subsidiary or advisory boards to facilitate a mutual “getting to know you” period. This allows boards to better understand the potential candidates’ skills and experiences while providing them with the opportunity to gain insight on what it’s like to serve on a board.
Advance planning of diversity additions well in advance of actual need; being strategic about not only diversity needs but balancing that with the skills and experiences needed to keep the board inclusive and effective.
Viewing diversity in a diverse way – less about checking a particular box and more on truly equitable inclusion based on the relevant board’s particular business’ needs which, for instance, might reflect diverse customer and employee populations on the board.
If a great diversity candidate is identified, but there is no vacancy on the board in the near-term, temporarily increase the number of directors until another director steps down from the board. This option is admittedly easier for larger companies.
At every governance committee meeting, members should review the current list of prospective director candidates for any updates or actions required.

How RSR Can Help with Director Searches

Our Board and CEO Services team partners with CEOs and boards to understand issues, assess opportunities, and strategically advise to ensure sustainable growth strategies are optimized. We continue to complete diversity assignments for a wide variety of companies, from small private family companies to Fortune 500s. Again, in 2021 and 2022, 86% of our board placements were either gender and/or ethnically diverse. We are proud to play a role in this important imperative, and excited for our clients who are making progress in diversity.

Our team leverages RSR Partners’ renowned experience in corporate governance with our industry and human capital consulting expertise to locate the best candidates. RSR Partners can assist your board with:

Board Leadership and Director Recruiting
Director Succession Planning Board Evaluations and Effectiveness
CEO Succession Planning
CEO Search and Selection
Managing CEO Transitions and Onboarding

We would love to hear your perspective on the evolution of board diversity and assist you in achieving your board’s diversity goals.

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Greg Lau leads RSR’s Board Advisory practice, Carter Burgess leads the Board Recruiting practice, and Eric Douglas Keene is a Managing Director in the firm’s Board & CEO Services practice at RSR Partners.

RSR Partners is a boutique professional services firm headquartered in Greenwich, CT, that specializes in helping Boards and CEOs with their most critical recruiting, selection, and succession needs. The firm was founded in 1994 by industry icon, Russell S. Reynolds, Jr. The firm has conducted thousands of projects for Boards and CEOs at public, private equity backed, and family-owned businesses across a range of industries including asset management, consumer goods and services, industrial, technology, and healthcare. To learn more about RSR Partners, click here.

Top 3 Things Leaders Need to Consider for Digital Transformation

Over the past few years, digital transformation has dramatically impacted the business landscape. This evolution is only intensifying in terms of need and speed – especially as we enter the age of AI. As organizations and leadership teams pivot to learn and adapt, the difference between success and failure may be determined by whether organizations are market leaders or market followers. It’s therefore critical to be ready for how digital transformation may impact your business, and even more crucial to be sure your team can embrace and leverage digitalization when the opportunities arise.

How can organizations and leaders determine that their teams are ready?

Human capital is critical. First, the right leadership team should be in place to gain the trust and buy in of the employees, stakeholders, and customers. Next, consider whether you have the right talent and resources to implement the transformation. Finally, consider the need to create and sustain the “new” culture through scaling the business.

1) Is your leadership team ready?

In speaking with organizations about their leadership needs, we often hear that they need to hire an executive to strategize and execute a digital transformation. Since digital transformation often requires coordination across functions, it can be a challenge for a new executive to gain the buy-in necessary to achieve their goals.

Additionally, what problems are you trying to solve? In today’s customer-centric environment, it is critical to listen to the needs of your customer. Be sure you can explain the transformation and why it benefits the customer, and how it will enhance the customer experience and brand loyalty.

2) Does your organization have the talent and the resources?

When answering this question, it is critical to consider two factors – financial capital and human capital. With financial capital, it’s vital to fully assess the current state of the business, devise a plan including a timeline, budget, and resources. Is this achievable? What needs to change or shift?

It may also be a good time to assess the talent that will be on the front lines of the transformation and whether they are open and excited about being a change agent. Do they have the skills required to understand whatever is required of your digital transformation- whether it’s an appreciation of data analytics, cloud computing, SaaS platforms, AI, software development, and cyber security skills.

3) Can your culture sustain the digital transformation?

There must be an environment of trust and transparency built into the culture as well a more agile and innovation mindset and if not, the digital transformation will not be sustainable. If this is an issue you face, identify what resources you need to help shift the culture and get buy-in both internally and externally.

Additionally, consider if your organization has the resources to scale and grow. Digital transformation will bring efficiencies, speed to market, cost savings, and growth. The key is to plan for the growth and appropriately resource for the growth both from a financial and human capital perspective.

Too often an organization is led through the transformation and the infrastructure of the organization cannot handle the change and rapid growth. The organization ultimately decides to go back to their legacy business model. Unfortunately, this is not fair to the executives, the employees, and certainly does not reflect well for the organization in the marketplace and with their customers.

As these digital times continue to evolve, your organization should, too.

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Kimberly Melcer leads the firm’s Marketing & Digital practice. She specializes in identifying leaders with digital transformation capabilities across the C-Suite, and especially within the marketing function. She works with start-ups, privately held, and public organizations. She has extensive experience within the AdTech, MarTech, and broader consumer and marketing services industries.

The Rise of the Independent Chair

This article was originally published on LinkedIn here.

Over the past twenty-five years of working closely with public company boards and CEOs, we’ve had a front row seat on the debate of whether to keep the Chair and CEO roles separate or combine them. While shareholder proposals advocating the split are common (especially when CEO transition, underperformance, misalignment, or crisis occurs), US public companies have been allowed some freedom to choose what board leadership model works best for them. However, since 2020, we have seen a subtle but meaningful change in the power and influence of the Independent Chair that is different than the past several governance cycles.

The role of a public company CEO has become increasingly complex as societal issues now fall on management’s doorstep. In many cases, the role and responsibilities of the Independent Chair has increased to help the CEO and the board to confront the range of stakeholder concerns. However, much is predicated on the chemistry and dynamic between the CEO and Chair and whether this change is a positive and productive shift. Countless articles have been written about what makes an effective Independent Chair. But at the end of the day, the formal and nuanced definition of the Chair and CEO roles and relationship between them is at the core of success and failure.

It is not a stretch for the outside world to imagine that when a CEO is not able to also assume the role of Chair (as it is easier for them to control the agenda), they would want to have an outsized vote to help select who would become the new Chair. Depending upon how the board views the CEO, they will either amplify or minimize the CEOs voice on that decision. At the end of the day, all stakeholders should seek to have a dynamic whereby the Chair is an adviser, a coach and supporter of the CEO but also provides constructive tension and accountability that pushes the CEO and management team to deliver on their strategic plan. As a result, the Independent Chair needs strong situational awareness to understand when to use their influence vs. authority.

When digging into recent governance data on the 1000 most valuable US public companies, some statistics caught our attention this week:

42% have an Independent Chair compared to 36% in the S&P 500
On average, those directors served on the board for 7 years before being elected Chair.
50% of these Independent Chairs took over since the start of the pandemic.

During the business reset and inflection the past few years, half of the Independent Chairman positions turned over at the 1000 most valuable US public companies. As we saw firsthand with many of our clients, most of these boards had more than one potential Director who could serve as the new Chair. During previous cycles, it seemed more politically obvious who was the right person for the role. What has materially changed today is the amount of time and deliberation it takes to pick who should be Chair and the impact it will have on the CEO and its various stakeholders. ISS and Glass Lewis have recognized the value and new work requirements of the Independent Chair by counting it as 2 outside boards instead of 1 when considering over boarding. While I have more than a few differences of opinion with the proxy advisors. In this case, I feel they appropriately value their importance and responsibilities.

The impact a great Independent Chair has on the board, management, and the company is not entirely visible or understood by the viewing public. But during a company’s most challenging and seminal moments, you will get peek behind the curtain.

We anticipate in the coming months helping shine a brighter spotlight on those Independent Chairs who have helped their companies get one step closer to their aspirational goals. In the meantime, please don’t hesitate to reach out to our team if you want to share or acknowledge the impact your Chair has had on your organization.

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Brett Stephens is the CEO of RSR Partners and helps lead Board & CEO Services at RSR Partners.

RSR Partners Strengthens Capabilities with Kimberly Melcer

Greenwich, CT, March 1, 2023 – RSR Partners, a leading board recruiting and executive search firm, announced today that Kimberly Melcer has joined the firm to lead their Marketing & Digital practice. Kimberly specializes in identifying leaders with digital transformation capabilities across the C-Suite, and especially within the marketing function. She works with start-ups, privately held, and public organizations. She has extensive experience within the AdTech, MarTech, and broader consumer and marketing services industries.

Prior to joining RSR, Kimberly helped lead the Digital practice at Buffkin / Baker. She transitioned to executive recruiting following a marketing and merchandising career in the fashion industry, most recently serving as Vice President of Global Merchandising at Armani Exchange. She started her career in the Macy’s Buying Program and later led the marketing and merchandising team within the non-beauty business at Avon.

“Ability to drive technological and digital transformation is increasingly a skill our clients are looking for on their boards and their leadership teams,” stated Brett Stephens, Chief Executive Officer of RSR. “Kimberly’s experience deepens and enhances our ability to access the talent our clients need to be at the forefront of innovation. Kimberly is a fantastic addition to our team as we continue to build service offerings that complement our existing strengths and add value for our clients.”

“There are incredible opportunities for leaders who operate at the convergence of data, technology, and marketing,” said Kimberly, “and the MarTech and AdTech landscape continues to evolve and grow. I was attracted to RSR’s collaborative culture and entrepreneurial spirit, especially since this area of expertise is welcomed across the firm and interconnects with other C-Suite functions. I’m excited to be a part of the firm’s future and its continued success.”

About RSR Partners

RSR Partners is a boutique professional services firm headquartered in Greenwich, CT, that specializes in helping Boards and CEOs with their most critical recruiting, selection, and succession needs. The firm was founded in 1993 by industry icon and Chairman Emeritus, Russell S. Reynolds, Jr. Over the past 30 years, the firm has conducted thousands of projects for Boards and CEOs at public, private equity owned, and family-owned businesses across a range of industries including consumer goods and services, financial services, healthcare, industrial, and technology. To learn more about RSR Partners, click here.

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Contacts
Lindsay Griesmeyer
+1 (203) 618-7076
media@rsrpartners.com

Perspectives From the Chair: Impact from the Universal Proxy Card

This article was originally published on LinkedIn here.

UPC Will Have Significant Impact on Boardroom Composition and Director Succession

Nelson Peltz is running for a seat on the Disney Board and Elliott Management is seeking seats on the Salesforce Board. This is just the tip of the iceberg. Both will be using the new SEC rule requiring Universal Proxy Card (UPC) for contested elections. Many observers believe the UPC will make it easier and less expensive to run an activist campaign to gain board seats. All nominees, both company and activist, are now on a single card and a shareholder can easily split their votes for the first time. Thus, shareholders can vote for one or more of the activist candidates.

However, this new rule may assist in getting better alignment on the required skills and experiences that independent directors need to execute the company’s strategy, oversee the CEO’s performance, and build effective governance structures. With the UPC, shareholders will have a greater say on the board’s composition as they can more readily compare the board’s nominees with the activist slate and focus on existing performance gaps. In addition, some commentators say that Proxy Advisers will even be more influential as they will need to compare the board’s candidates with the activist candidates.

The board’s independent chair/lead director and the Nom/Gov committee have the urgent task to address their most uncomfortable duty – asking directors to leave prior to retirement which now is often 75 years old. To avoid making an activist campaign personal to individual directors, the board needs “to avoid defaulting to renomination rather than undertaking tough decisions. (NACD: A Framework for Governing Into the Future report).”

What should nominating and governance committees do?

One immediate solution is to consider expanding proxy director biographies with more specificity on why each director should be on the board. The current skills matrix is often of no use as it does not specify the strength of the skills and experiences using a 1, 2 or 3 rating. Also, the committee should improve the board leadership, committee chairs, and individual director evaluations. These evaluations need more rigor on improving board performance. For example, look at long tenured directors and justify in the proxy their contributions and continued value serving on the board.

From recent conversations with several notable Nom/Gov Chairs about how they are viewing the situation, the feedback has been consistent that it will have an impact on how boards view director succession and board recruiting in the future. The reaction is that boards will take less risk when adding director candidates and focus more on those who have overtly relevant industry or functional expertise. While we hope this will not have an impact on the recent boardroom trend for younger, more diverse, and outside-the-box candidates, we have our concerns.

For future board searches, the candidate success profile must be more granular on the skills and experiences required, and how candidates can impact board and committee leadership succession and improved board oversight. Nom/Gov committees will need to have a strong grasp of the immediate and longer-term capability gaps that need to be addressed along with a sense of what the stakeholders expect to ensure there is no misalignment on future actions.

Activist shareholders have and always will use board composition as a trojan horse to ensure that their perspective and agenda is considered or acted upon in boardrooms. The best defense for corporate boards is to ensure company performance is meeting or exceeding its industry peers. As the stakes continue to intensify, it is paramount for boards to move quickly on any lingering issues that will affect boardroom effectiveness.

We would love to hear your perspective on the ripple effects of the UPC. Similar to the implementation of SOX, this story will be with us for the foreseeable future. As we have the past 30 years, we are here to help to boards navigate through changing tides.

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Greg Lau leads the Board Advisory Practice and Brett Stephens helps lead the Board & CEO Services at RSR Partners.

Reflections on an Impactful Year

Dear Clients and Friends,

We appreciate your continued trust and support. Without the confidence of our valued, long-standing clients and friends, we would not be able to do what we love. As 2023 marks the 30th anniversary of RSR Partners, the new year presents an opportunity to share with you our reflections upon our firm and the marketplace.

In 1993, our Founder, Russ Reynolds, embarked on a journey to create a new firm that was distinct from his first, Russell Reynolds Associates. RSR Partners began as a small board advisory firm, initially well-regarded for its Directorship publication, which is now owned by the National Association of Corporate Directors (NACD). Over time, our firm has grown and evolved to become one of the premier board recruiting and executive search firms engaged by boards and CEOs to advise them on their most important and sensitive search needs. We are unique in our boardroom vantage point, our ability to be selective, and access to the wisdom of an industry icon who acts as our beacon regarding what makes great leaders.

2022 was another productive and impactful year for our firm and our clients and candidates. While our board search and advisory practices continue to be the backbone of the firm, our C-Suite search expertise was utilized across a myriad of industries and situations. Additionally, the firm marked an important milestone this summer when Todd Ruppert seamlessly transitioned into the role of our Chairman, succeeding Russ Reynolds, who continues to provide us with advice and counsel. We were also excited to have Eric Douglas Keene and Dick Hoag join the firm to continue to strengthen the board and CEO services we provide for industrial, consumer, and financial services clients.

As most of our client engagements are confidential, complex, and highly sensitive, we are unable to publicly promote the details around these successes. That said, we are seeing not only an increased demand for our services, but also a growing demand for boards to enhance their capabilities and effectiveness, and for CEOs to address specific gaps in their leadership team.

Some recent examples include:

Guiding the board of a Fortune 500 consumer products company on Chairman succession and the recruitment of two new board members.
Advising a large asset management business to identify, assess, and select two new mutual fund trustees.
Partnering with the CEO and owners on the selection of a CFO for a private equity backed consumer products business.
Helping the CEO of a Fortune 500 industrial technology company identify, assess, and select a transformational CHRO.
Advising the CEO on the selection of new CMO for a large pre-IPO private equity backed data and analytics business.
Providing external CEO succession candidates for a multibillion-dollar family owned industrial and consumer products company.
Partnering with the board of directors on the recruitment and selection of a new Executive Chairman for a prominent and disruptive leader in the mobility and electrification industry.
Consulting and recruiting for a prominent family office on the selection of a new CEO and CFO.

We see tremendous opportunity for leaders to rise to the occasion in these still uncertain times. Our society must continue to seek out and support individuals who have the potential to become great leaders, especially with an eye towards the diversity of thought that continues to shape our cultural fabric. Successful companies and communities are only created by having the right people, which continues to be our quest for our firm and for our clients.

We look forward to our anniversary this December with pride in our firm’s past and confidence in its future. In the event you have a sensitive board or executive search needs in the coming year, we would be happy to discuss the situation in confidence.

We wish you and your colleagues much success in 2023 and beyond.

—
Barrett J. Stephens
Chief Executive Officer
O: +1 (203) 618-7022
BStephens@RSRPartners.com