Related to board recruitment and service are issues of expertise, experience and, ultimately, performance. Although these factors apply to all types of boards, governance news over the last several months highlights problems and players in large, public companies. Serving on the board of a corporate giant can be the capstone of a full executive career, but it can also be a minefield for directors less skilled at weaving trust, accountability and transparency concerns with the obligations of oversight and stewardship.
You don’t have to look any further than the financial services sector over the last five years—in particular what is roiling in the boardroom of JPMorgan Chase currently. It starts with the story of the “London Whale” trader in 2012 and may not end with the annual meeting later this month. In fact, the current situation has so many facets to it that it goes beyond the central question of risk management.
According to an article that appeared in the Monday, May 6, 2013 issue of The New York Times “A Call for New Blood on the JPMorgan Board” three directors who serve on the bank’s risk policy committee may be voted out soon by shareholders. In a statement rebutting the findings of the outside proxy advisory firm I.S.S., the bank said that … “the members of the board’s risk committee have a diversity and breadth of experiences that have served the company well.” This is more than a case, however, of “standing by your men” (and woman) apparently. This same article notes that in Institutional Shareholder Services’ 33-page report … “the bank’s biggest rivals have managed to find directors with stronger qualifications.” *Note: for transparency, I worked at JPMorgan Chase for two lines of business in management development.
Here are highlights that summarize some of these boardroom challenges:
- Board composition with breadth and/or depth of experience, i.e., inside or outside of the industry
- Diversity, including gender and other considerations
- Split of the chairman and chief executive positions
- Shareholder activism
- Outside influencers such as proxy advisory firms
- Effective and timely communications between the board and management.
To manage and reduce risk, however, a skill I think directors should have is the ability to ask questions—layered, high-quality questions that are both technical and conceptual. And, of course, the probative instincts of an investigative reporter.