Are Professional Board Directors the Answer?

As a result of the recent wave of corporate scandals and the ensuing regulatory changes, corporate boards in the United States have been facing an increasing number of demands. Companies now have bigger agendas for their board directors, requiring deeper reviews of policy topics, such as ethics codes, internal controls and director performance evaluations. Audit committees are meeting more frequently, and directors are being asked to devote more time to their duties, including the review of comprehensive board reports.

At the same time, the pool of available candidates to fill board positions has been shrinking. Increasing numbers of active senior managers have been avoiding — and will continue to avoid — outside director responsibilities, due primarily to personal choice or the mandates of their own boards. The business community clearly is moving away from what used to be the common practice of senior executives serving simultaneously on the boards of four or five companies. (For a detailed discussion of these and other issues, see “ The Changing Face of Corporate Boards” by Edward E. Lawler III and David L. Finegold.)

One obvious solution is to recruit retired senior managers to take more active roles as directors. But boards would have to be certain that the skills, knowledge and — perhaps most importantly — motivation of any such candidates are all present in sufficient quantity. Because many retired senior managers have accumulated considerable wealth during their working years, the monetary rewards of board positions might be insufficient to elicit the best efforts from those individuals. One concern is they might not remain on boards during rough times, especially if the difficulties could tarnish their professional reputations or possibly lead to personal liability.

Professional Directors

Given these realities, companies looking to fill board openings might do well to consider another class of potential candidates — professional directors. Here, the term “professional director” does not refer to academics, attorneys and other individual contributors who serve on several boards (apparently the traditional definition of the term). It instead refers to well-established professionals who devote all of their work, time and energies to corporate board activities. Such individuals might come from a variety of backgrounds, but they will likely be drawn from one of three categories.

The first is senior managers in midcareer. These executives have considerable experience but prefer employing their knowledge and experience in a less operational and more consultative manner.