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The Basics of Board Service: Sheila Ronning Demystifies the Fundamentals

8/22/2016 Articles

Published in the ACC Docket by Carly O'Halloran Alameda and Olga Mack.

Long before adding women to boards was a hot topic, Sheila Ronning, CEO and founder of Women in the Boardroom, believed in the importance of providing women the opportunity to serve and excel on corporate boards. Today, as one of the nation’s top leadership and board service experts, Ronning helps connect influential women executives and professionals with the people and tools they need to succeed in business and the boardroom by organizing executive and board coaching sessions, seminars, and webinars.

“The journey to the boardroom can, at times, be an overwhelming undertaking filled with questions about what to expect, how to prepare, and how to be an effective board member,” Ronning says. “My favorite thing to do is to demystify board service and answer the burning boardroom questions that many professionals, including in-house attorneys, have.”  Ronning shared some of those fundamental questions and answers with us, in what will be the first of a three-part series in this column featuring Ronning’s insights.

Three broad categories of boards
Before embarking on a journey to secure a board seat, it is helpful to understand the various types of board positions that exist and what you are qualified for. Although no two companies or organizations are the same and board positions span a wide spectrum, there are broadly three types of board positions. The first is the most common and recognizable: the board of directors of a public company. These boards face specific regulatory requirements, are higher profile, and are more likely to grab headlines and public scrutiny. They are more highly compensated and also often more structured in their committee make up and more demanding in the time commitment required.

The second type of board position is found in private companies, startups, and venture-backed companies. This also includes private equity boards and for-profit advisory boards. These boards’ level of organization, their structure, and their make-up vary greatly by organization, as does whether and how these positions are compensated. However, Ronning notes, “These types of boards are important to keep in mind if you are seeking a board position. There are more opportunities for these types of board positions, and they provide the same type of company oversight experience as the boards of public companies.” Ronning also recommends seeking out advisory boards from larger companies. For example, Toyota has an advisory board for diversity.  “There are so many different types of board positions that may not initially be on everyone’s radar, but that offer excellent opportunities and experiences.” 

The third type of board, nonprofit boards “can also be a good place to start,” says Ronning. Many of them don’t pay, but some do. Serving on a nonprofit board can help develop skills applicable to for-profit boards, and can even lead to opportunities to serve on for-profit boards in the future. “But you need to think strategically. Consider joining large, well-run nonprofits where you take a leadership role, know the expectations, learn governance, and have a true passion for the work,” recommends Ronning. Be aware, however, that many nonprofits require significant donations or fundraising. “These boards can be strategic training grounds so long as you do your due diligence and pick a board carefully,” says Ronning.

The responsibilities of a board director
Prospective board members should also make sure they understand what these positions entail. Boards generally are responsible for hiring, evaluating, and firing CEOs, senior executives, and management. They oversee financial performance on behalf of company stakeholders, primarily the company’s shareholders. Board members also approve and oversee strategy, and bring in other directors. They monitor and approve audits, governance, compensation, and other processes in order to comply with regulations and best practices. “While a specialty is helpful, you need to be an excellent generalist to understand all these aspects,” says Ronning.

As a board member, your role as a representative of the shareholders is critical. “With public companies, the sole responsibility is to shareholders. You may find yourself in conflict with management,” Ronning says. Ronning warns that there is increasing pressure to make appearances, represent the company, give support during crisis, and engage in other non-traditional responsibilities. “Companies are increasing demands for your time to engage with the outside world beyond the regular meetings,” she says. “It has become much more public facing.” Ronning emphasizes that if you are uncomfortable with what the company is doing, you need to be able to “push back.” “You need to scrutinize and understand the direction of the company, ask the right questions, and understand your duties,” explains Ronning.

Overall, being an effective board member requires knowing the company, preparing extensively before each meeting, working effectively with fellow board members, and speaking up thoughtfully. You must remember to be a director, not the CEO or management. You also need to understand and keep up with the industry and your competitors. Most importantly, says Ronning, “Be there. And be there triple time in a crisis. In a crisis, you need to review documents, meet with professionals, and work with management.” Ronning adds, “Things like an activist campaign may happen at any time.”

The risks of board service
Ronning emphasizes that prospective board members must be aware of the potential risks that come with board service. “In a public company, if the stock price sinks, you should expect to be sued,” Ronning says. Although these lawsuits take time and money, not all cases hold directors personally liable. “You are allowed to be wrong,” explains Ronning. “You need to be able to defend the process, be engaged, and take time to reflect on questions.” Criminal risk is also a possibility, however Ronning adds this is “relatively rare and only applies in egregious cases of fraud.” Similar risks exist in private companies, although there are fewer lawsuits because there are fewer requirements and less public scrutiny.

Given these risks, “directors and officers liability (D&O) insurance is a must,” she says. “Get familiar with D&O insurance and have a conversation about it.” There is a definite financial risk. Ronning adds, “Insurance will not cover the reputational risk of a lawsuit.” Some reputational damage may take a negative toll on your career prospects and be difficult to fix, especially in today’s internet age. “You need to be comfortable with visibility and risk,” Ronning warns. “You may need to consider resigning if the board is going in an uncomfortable direction.”

Finally, another thing to consider is the time commitment. “The average for public boards can be 250 to 300 hours a year,” says Ronning. “If a company goes into a crisis, it can double or triple.” Actual time commitments vary due to variables such as travel requirements and the particular situation a company is in. For example, smaller businesses can often require more time and hand holding because they may be less sophisticated. It’s important to discuss this time commitment in advance. “Be sure that you and your family are okay with the commitment, which is often in addition to your day job,” she says. “It is a good idea to set expectations for your time commitment and discuss this ahead of time.”

With these basics in mind, it is easier to determine whether board service is right for you. Ronning emphasizes due diligence and staying true to yourself, your interests, and comfort level, which will be covered in more depth in part two of this series. Finally, don’t be discouraged if the process feels difficult. As with any endeavor worth pursuing, seeking a board position takes time and hard work, and can often include additional hurdles for women attempting to break into the male-dominated boardroom. Part three of this column series will highlight tips for networking your way into a board position, and Ronning confirms “it can be done."

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