In June 2012, Sheryl Sandberg, the current Chief Operating Officer at Facebook, was elected to the board of directors. This move by Facebook, one of the most visible and analyzed public companies in the USA, was covered by all media outlets. There was some applause –finally Facebook has a woman on the board! Followed quickly by criticism – yes, but she’s an insider, not an independent, outside director.
Not everyone is interested in sorting through all the coverage and analysis by corporate governance wonks about her selection. But I would suggest there are some lessons about her election that are relevant to middle-market companies and to the nonprofit community. Specifically, these lessons are:
Ms. Sandberg raised some eyebrows when she publicly acknowledged that she leaves work every day at 5:30 p.m. to have dinner with her kids, but this decision speaks to the strong team she’s built, the culture she’s encouraging, and her ability to recognize that her career is one part of who she is. All good lessons for you as an organizational leader!
Where should you find directors - inside or outside the organization?
Whether your organization is private equity backed, privately-held, or a nonprofit, having a board of directors or advisors can provide valuable guidance, insight and perspective to the organization. As a business leader you need to determine the composition of your board. There are many factors to consider when selecting board members.
According to the 2011 Board Index from executive search firm Spencer Stuart, the percentage of non-independent directors has fallen from 23 percent to 16 percent over the past decade among the companies in the S&P 500 stock index. In Silicon Valley, insiders make up about 20 percent of directors. Companies with outside financial backing may have board composition guidelines to which they need to adhere. But even privately-held companies should carefully consider the balance between inside and outside members. Increasing the number of independent board members provides the company with advisors who have a wider spectrum of experiences and contacts.
The recent selection of Sheryl Sandberg to the board of Facebook illustrates the value an inside director brings to the board. Her experience in building the advertising model and her understanding of the business model demonstrate how essential she is to the company’s success and makes a strong case for appointment to the Facebook board.
Your board should reflect your goals for the organization. If you are positioning your organization for rapid growth or for a future transaction, it may be important to look outside your organization for directors with this type of expertise. Increasingly, there is a perception that a company wishing to be regarded as professional and well-managed needs outside board members. If your organizational goal is to remain a privately-held, profitable organization you may opt to include insiders on your board who possess the domain, industry, and product knowledge to help you accomplish your goals. If you are running a nonprofit organization, your board composition should reflect the communities you serve and the mission you’re delivering.
Ultimately, a board should have members who bring the independence, resources, diligence and discipline to move your organization forward.
Why it’s important that your board represent diversity.
Diversity in thought, perspective, race and gender allows an organization to better understand the external environment and how to best position in that environment. In addition to the fiduciary role that the board plays for an organization, these individuals should serve as a conduit for external perspective and information to help translate the impact of new data.
The lack of representation of women on corporate boards has been a topic of discussion for some time and is recognized as a shortcoming of most boards. Research shows that there are numerous benefits to organizations which recruit women to the board. These benefits include improved governance, enhanced group dynamics, and a positive message to employees and customers.
Open board seats are often filled through referrals from current board members, and members of management. Because men are still in the majority in those positions, often women are not even being considered at the time that a slate of potential board members is being developed. Let’s hope that Sheryl Sandberg has at least 100 “friends” on Facebook who are equally as qualified and interested in serving on a corporate board.
As a business leader, you should be intentional about recruiting and evaluating women candidates for open board positions. This practice doesn’t suggest organizations should settle for unqualified candidates. Instead, organizations should set and accomplish a diversity goal rather than hope it happens using existing practices.
