“Offboarding” to Achieve Optimal Board Composition
Rather than thinking about how to refresh the board when directors approach mandatory retirement ages or term limits, a recent opinion piece in Forbes suggests “offboarding” as an alternative method to change board composition. Some might think “offboarding” is a nice way of saying “removal,” but here’s what the author says about it:
For many reasons, it is critical for the board’s governance committee to take a closer look at what “offboarding” might achieve as a governance tool. Director offboarding is a focused board process to achieve a structured separation from certain directors without prompting controversy or ill will. It’s intended to allow the board to achieve necessary turnover more quickly and expansively than through term limits or mandatory retirement age, and more gently than through removal.
As defined by NACD and others, “offboarding” processes are grounded in a shared understanding amongst all directors of why an individual was appointed, and of the board’s expectations of performance. From the beginning of board service, directors are ideally made aware of the potential that they may be asked to leave the board before their term has formally concluded. It also involves an ongoing evaluation by the governance committee of the skillsets needed by the board, and conversations on whether individual director backgrounds continue to meet those needs.
The author attributes several factors as leading to more interest in offboarding, the first being that board composition doesn’t change all that fast and governance matters relating to how companies have responded to the Covid-19 pandemic, economic disruption and social unrest are leading to increased focus on board composition.
One effect of the COVID-19 pandemic has been increased concern with director bandwidth. Earlier this year, State Street was the latest asset manager to update its director “overboarding” policy. Maybe some directors will scale back board commitments and focus their efforts elsewhere. That’s what Reddit’s co-founder Alexis Ohanian did when he announced he was stepping down from Reddit’s board — he took things a bit further by asking the company to replace him with a Black board member — and this week, the company did so by appointing Michael Seibel, CEO of Silicon Valley startup accelerator Y Combinator.
Aside from concerns about overboarding, the author says many companies will emerge from the pandemic with different competitive footprints and economic models. Although Reddit’s Ohanian may not start a trend and traditional board refreshment methods will certainly persist, maybe increased focus on board composition as a result of current events will lead more boards to consider offboarding as an option for bringing new ideas and perspectives to the boardroom.
-Lynn Jokela, TheCorporateCounsel.net June 12, 2020
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