CSCMP's Supply Chain Quarterly
October 16, 2019

A seat on the board: Do you have what it takes?

Whether you're choosing a new member of a board of directors or are a candidate yourself, following these guidelines will help to ensure the board includes people with the right skills and attributes for the job.

For many people, the term "board of directors" conjures images of well-dressed executives who meet behind closed doors, far removed from the people who manage day-to-day operations. But as events of the past decade have shown, a board of directors can have a profound influence over a company's success or failure, and therefore who sits on the board should be of interest to all employees.

The last few years have seen significant shareholder value destroyed by boards and management that failed the tests of vigilance, independence, awareness, and integrity. The media have chronicled a number of corporate tragedies that resulted from accounting scandals (Enron, Adelphia, and WorldCom); inadequate or flawed investment oversight (JPMorgan Chase and the "London Whale"); bad investment strategies (the collateralized mortgage fiasco); and unseemly executive compensation and the absence of accountability (TYCO International and Chesapeake Energy).

Those corporate scandals made the shortcomings and failures of corporate boards hot topics on the evening news and at the water cooler. They also sparked the passage of two landmark pieces of legislation in the United States that were designed to correct such abuses: The Public Company Accounting Reform and Investor Protection Act of 2002, popularly known as Sarbanes-Oxley, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (much of which went into effect in 2012).

I believe that now, more than ever, corporations need strong and independent boards to provide guidance, perspective, counsel, expertise, and governance. Board members need to ask tough questions. Investors, public and private, **italic{expect} management to be held accountable by boards of directors. And they want boards, in turn, to be held accountable for doing so. This doesn't apply just to companies like those in the famous cases mentioned earlier. It's just as true for logistics and transportation service providers. These expectations and the unrelenting increase in regulation prompt investors, board chairmen, and board governance committees to seek an answer to the question: "What makes a good candidate for a board of directors of a transportation or logistics company?" A similar question applies to logistics and supply chain professionals who may be candidates for the board of any company.

What board members do

The overarching duty of the board of directors is to protect and sustainably maximize shareholders' assets and interests. The basic legal duties for a board member are to approve financial statements; select and approve auditors; approve the annual budget; and establish dividends, recommend stock splits, and oversee share-repurchase programs. Oftentimes, a company's bylaws may specify additional legal duties and expectations for board members.

But there are other, "value-add" requirements. These responsibilities may include:

  • Reviewing, testing and approving strategy
  • Selecting, evaluating, and mentoring the chief executive officer (CEO)
  • Succession planning
  • Setting the tone (and policy, if needed) for compliance and risk management
  • Directing and approving major merger and acquisition and finance transactions (mergers, acquisitions, divestitures, joint ventures, partnerships, and so forth)

In addition, boards can act as a resource to management, assisting with advice, guidance, contacts, and relationships. Boards comprising carefully selected, seasoned candidates can be particularly useful in providing perspective, awareness, and balance in regard to companies' "bets" and strategy.

Of course, the boards of logistics- and supply chain-oriented companies have the same basic requirements as for any other corporation, and they should aspire to provide the same "value-add" elements. However, in our dynamic industry—which is constantly subject to disruption in terms of technology, regulation, modal capability, competition, sourcing strategy, and business models—board members need to bring a higher level of preparedness and a broader view of the industrial and commercial playing field.

Personal qualities of a strong candidate
Although we tend to think of boards as monolithic structures that come into being at one point in time and endure, the reality is that they are constantly changing. Board members retire, CEOs depart, corporate strategies evolve, and major investors weigh in with their candidates. One of the responsibilities of the chairman, CEO, and (in many cases) the board's nominating and governance committee is to continually monitor the composition and complexion of the board and identify candidates who can best fill any expertise or personality gaps.

An effective, well-balanced board comprises individuals with complementary skills, experience bases, and personalities. My "checklist" for potential board candidates includes the following personal qualities: unshakeable integrity, clear intellect (with high mental "clock speed" being a real plus), independence as a thinker, seasoned tenure in executive management, prior board experience, a positive reputation, good interpersonal skills, strategic agility, and—the most elusive and important of all—wisdom.

Most of the above-referenced personal qualities are self-explanatory, but one that is often overlooked is "good interpersonal skills." Good interpersonal skills are particularly valued when independent, veteran executives on a board convene to debate tough questions and such matters of import as strategic direction, capital allocation, exit strategies, acquisitions, compensation, dividends, CEO succession, and the like. Great board members have the ability to build consensus, artfully make their points without damage, stand their ground graciously, and use humor to defuse emotional situations. Outspoken, stubborn, independent personalities, no matter how brilliant or insightful, wear quickly in daylong or multiday board sessions!

What board members should know
Let's turn now to the question of background expertise. For the group as a whole, I've found that comfort with strategic matters is particularly important. Strategy is a principal obligation of boards, and virtually every board decision of merit has defensive or offensive implications.

In general terms, I look for a balanced board of individual players, each of whom brings specific subject-matter expertise to the team. A well-rounded board generally includes: a broad-perspective lawyer; a senior financial or accounting professional; an experienced merger-and-acquisition (M&A) person or dealmaker with a track record in the field; and an individual with strong credibility in commercial matters, such as sales, marketing, and negotiations.

For a logistics or transportation company in particular, the broader a member's knowledge about modes of transport, business models, business processes, trends, players, and mergers and acquisitions, and the more fluency candidates have with the issues, the better served the board and the corporation will be.

At the same time, it is helpful to be mindful of where the company should be three to five years down the road. For that reason, the selection process should build into the board the skills and knowledge that could help the company on that journey. For example, a company planning to go overseas would be well advised to recruit a board member who is experienced in international trade, foreign-exchange risk, the vagaries of cross-border taxes, and operations in another geography. Similarly, a company needing to expand its Internet presence and e-commerce capabilities might want to find a board member who is Internet-native and/or experienced in launching or accelerating e-commerce platforms.

In addition, a board candidate or member must be educated about and current on the practices, technologies, pricing, and strategies of the direct competitive threats to the company in question, as well as the threats from businesses that are in the "adjacent" competitive spaces. For example, intermodal transportation is "next to" trucking, and ocean carriage is "next to" marine terminals and freight forwarding. It is also of great value to be a student of the methodologies, business models, competitive advantages, and threats to the company's customers. In this way, the candidate or board member will be best equipped to participate in key board discussions that focus on customer risk and strategic options.

An interesting side note: More and more customers of logistics and supply chain service providers are recognizing the power of supply chain management to enable strategic differentiation beyond product selection and price. For example, a business-to-consumer (B2C) retailer might leverage quality and professionalism of the delivery, order-to-delivery speed, ease of returns, and more to improve the customer's experience and distinguish it from competitors. As a result, many companies are considering inviting service providers to join their boards. This is a great opportunity for experts on the provider side to broaden their own knowledge and understanding. By way of example, I was asked to join the board of a consumer packaged goods (CPG) company that had determined that the largest component of its cost of goods sold (COGS) related to its supply chain—yet no one in the boardroom was knowledgeable in this area. The board addressed that issue, and in the process I got an in-depth education on the issues and drivers of one particular corner of the CPG environment.

Finding candidates and openings
Now that you know what professional qualifications and personal characteristics a board member should have, where can you find candidates who meet those criteria? Or, if you're looking for a board seat yourself, how do you go about finding those opportunities? There are several proven resources to explore.

First, talk with board members you already know, as most members have good contacts in the board community. Second, if you are a member of the Council of Supply Chain Management Professionals, consider using CSCMP's resources, which include a searchable, online directory of all current members. Another excellent option is the National Association of Corporate Directors (NACD), which provides board education and certification. NACD has a proprietary, searchable database designed to match member board candidates with companies seeking independent directors.

However, if the search involves a public board or a very large private firm, the recommended route is to retain a national search firm to handle that task. The search firm inevitably will identify a broader range of candidates. Moreover, retaining an independent, expert third party to find the best candidates will demonstrate diligence to investors. All of the large, national search firms have board practices, and a number of them have built supply chain expertise in particular.

The task of assembling a board of directors or of upgrading a board with the addition of a new member can be described as "artful puzzle solving." In the fast-paced world of transportation and logistics, where new market entrants, technologies, opportunities, and business models are continually evolving, a strong, independent board provides an important ingredient in building an enduring and successful company. Good boards are the result of diligence on the part of chairmen, CEOs, and nominating and governance committees, who have worked hard to find the best possible candidates.

Stephen H. Fraser is managing director of Barrington Capital Partners LLC, which provides board and transitional/interim CEO advisory services to companies in the logistics, supply chain, transportation, and distribution industries.

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