C-Suite Executives and External Boards - Policies for Board Membership

4/25/14

One of the concerns I often hear from CHROs is the difficulty in finding good board members. As the time demands and risk of lost reputation increase, many find board work to be worth far less than the pay they receive. Given that there are only so many CEOs and former CEOs around, firms increasingly seek out non-CEO executives to fill their open board spaces. Recently HR Policy Association surveyed their board members to determine how companies are managing decisions regarding their internal executives serving on external boards. In this blog I'll discuss the policies, and in the next blog I'll explore the benefits.

Virtually all (21 of 22) of the CHROs surveyed said that their firms allow executives to serve on the boards of external for-profit companies, yet very few (6 of 22) said their firm has formal policies regarding the activity. Those that do tend to locate the policies within the Conflict of Interest Policy, whereas those that do not expressed having informal policies regarding who must approve the decision to let an executive accept a board position.

CEOs are involved in approving all decisions. In half the cases the CEO works with other executives (usually the CHRO and the General Counsel in order to ensure no conflicts), in one third the CEO makes the decision alone. In 2 cases the CEO and Chairman decide and in 2 cases a board committee must approve the request made by the CEO. In evaluating the requests, companies usually limit the opportunities to very senior executives, usually ones in the CEO succession pipeline. In addition, the boards cannot be of competitors or vendors or on companies that for one reason or another would create a conflict of interest.

Finally, the CHROs reported that they did not have a limit on the number of executives that could serve on external boards, but that they did tend to limit the number of boards on which any executive could sit. I almost all cases they were limited to one for-profit board, and in some cases they could also serve on a not-for-profit board. In only one case did a CHRO state that an executive could sit on more than one for-profit board, but only with the CEO's approval and suggested that would be granted only under special circumstances.

In essence, companies do not seem to discourage board participation, but they seek to manage it. The experience can be valuable to the company as a development tool for senior executives, but only if it does not take them away from their company duties and does not create a conflict of interest.