The Crisis of Disengaged Directors in Corporate Boardrooms
There’s an unspoken, growing and unacceptable crisis in corporate boardrooms — disengaged directors. As they balloon personal fortunes and artificial prestige, their silence fuels risk, abets rogue executives and empowers board cliques. What’s worse is that complicit senior leadership colleagues tolerate it.
Nearly half (48%) of over 700 corporate directors surveyed by PwC and The Conference Board favored replacing at least one fellow board member. Further, almost 20% acknowledged that peers are “reluctant to challenge management.” A follow-up study with over 600 C-suite leaders revealed that only 29% of executives rated board performance as “good or excellent.” That’s disturbingly poor, as only 21% think boards “spend enough time fulfilling their responsibilities” and two-thirds indicated that their boards fail to “ask probing questions.”
Such complacency is hardly commensurate with the over $300,000 annual average total compensation paid to S&P 500 directors last year. With AI’s burgeoning omnipresence, robots could offer far cheaper and arguably better co-governance. A 60-second, costless exercise can start that overdue, challenging conversation.
AI’s Role in Improving Board Performance
In today’s tech era, it’s inconceivable and unacceptable that a board member can be so unprepared for meetings as to ask zero questions — in some cases, ever. To the contrary, in under one minute, ChatGPT, in response to the rudimentary query, “What questions should a board member of a public company ask?” yielded a (free) ten-point board agenda organizing template over thirty initial diagnostics. Categories intuitively included strategy, risk, financial health, market opportunities crisis preparedness and board effectiveness. Sample questions probed strategic progress, competitive dynamics, business performance, looming threats and future board composition. The exact questions are less important than their mere presence. Of course, the machine’s response is hardly complete nor company-specific, but it’s far better than too common silence and perilous disengagement. As a minimum, the one-minute, costless AI list generation exercise sharply contrasts lock-jawed board members quite content to “go along and get along” for hefty pay and stellar meals.
Examples of board failures are lengthy and well-publicized. At the time of the infamous Lehman Brothers collapse, only two of its board members had financial services experience. One longtime Lehman director was Dina Merrill, 1950s film star and heiress to the Post cereal and EF Hutton fortunes. This year, Southwest Airlines’ board age, experience, perceived indifference and lack of technology committee drew great scrutiny following colossal service disruptions and sizable executive pay hikes.
The Need for Inquisitive Minds and Courageous Governance
Beyond any due diligence or governance checklist, boards need credible leaders with the insight to solve increasingly complex challenges. That leaves two options: A bit of sage, old management advice applies aptly to boards — “you can change your people or change your people.” The former rarely works. And Spencer Stuart’s 2023 S&P New Director and Diversity Snapshot reveals tough competition ahead for board seats. Nominating committees ranked board composition and CEO succession as the top focus areas in the coming year.
Despite the cries for greater cyber and tech expertise, financial experience intriguingly tops the list of recruitment priorities (38% of survey respondents.) Spencer Stuart observed, with Sarbanes-Oxley two decades old and board tenures averaging about eight years, companies are now saddled with a third (or fourth) audit committee turnover. To meaningfully address corporate responsibility expectations and capital market requirements, boardrooms need inquisitive minds and courageous governance far more than a proxy’s orchestrated matrix and auditors’ affirmation.
The Option of Resignation
Consultants reap vast fortunes from futile exercises intended to drive high engagement but flop with the board docility that entrenched insiders truly prefer. Third Creek Advisors founder Adam J. Epstein offers directors another viable, but far less popular, option — resign. He wrote, “I have discussed this issue with [a] lot of board members over the years. I can’t tell you how many times I’ve heard things like, ‘The CEO was the wrong person to lead the company…for many reasons. But the other board members were good friends of the CEO, and I was on an island’ [or] the other board members weren’t experienced enough to know that the finance team was not only understaffed, but it was also amateur hour. I could just tell that this was heading to late filings and a potential restatement situation. All the indicators were there, but I couldn’t get any of the other board members to see the problem.” He adds, emphatically, “And all those poignant reflections ended the same way, ‘I should have resigned from the board.’ None of them did. All of them regretted it.” Yet, ego and excuses prevent directors from considering preemptive resignation. They fear looking bad, posture allegiance to norms, harbor insecurities — or simply value titles and pay. That passivity and acquiescence may now face its digital demise.
The Future of Boardrooms with AI
The latest CNBC Technology Executive Council bi-annual survey found that AI investment will be the top IT spend in the next year. As co-piloting supplants everyday workflows, boardrooms are not immune. If cleverly deployed, such albeit imperfect algorithms can inform human engagement and elevate stewardship. Who’s forging the future or soon to be coded out of it? There’s still time to change the road you’re on.
