Good governance requires preparation, participation, and the courage to address underperformance
By Chuck Gray, Pam Warren, and Greig Schneider
The scene: A corporate boardroom. The topic: A decision vital to the organization’s success. The stakes: Enormous. Each board member is expected to bring insights, healthy debate, and perspective. But what happens when one member does not?
Unfortunately, this happens a lot. In the past two years Egon Zehnder has conducted more than 400 Board Effectiveness Reviews all over the world, with the goal of assessing and improving board performance for the benefit of all shareholders. The majority have at least one director consistently falling short of expectations. A recent survey by PwC and The Conference Board finds that 93% of senior U.S. executives believe at least one board member should be replaced, and 78% say two or more. And in our experience, chronic underperformers often remain on boards—for years—until their term expires or they age out.
So why do successful executives who are well accustomed to giving tough feedback suddenly go silent when it comes to board underperformance?
The Many Faces of Underperformance
Board member underperformance comes in many well-known and unsavory flavors. The most common are:
• Under/Over-Contribution: There are some members who virtually never speak. In our Board Effectiveness Reviews, references typically say, “I know they have valuable insights to contribute, but…” Just as damaging to performance is the other end of the spectrum: Those who always must speak, and whose airtime to value ratio is inverted. (The latter tends to be more annoying, but both are problematic for board dynamics and culture.)
• Under/Over-Preparation: Being on a board is a job—it’s called board service for a reason. And it pays well: The average corporate board member receives nearly $250,000 per year in compensation, according to the National Association of Corporate Directors, more than 3x times the median U.S. income. Browsing materials en route to the meeting (or in the meeting itself) shouldn’t cut it—but we see this a lot. Less common, and related to over-contribution, is over-preparing, which often leads to “being dragged into the weeds”—a form of over-contribution. Again, both degrade board effectiveness.
• Distraction: All board members are busy people, but some feel the need to stay busy in a meeting, texting, typing, stepping out for calls, and generally not giving their full attention. Understandable at times, but unacceptable as a pattern—and a growing problem as board materials are distributed digitally and/or on tablets.
No director will be perfect, but when a member exhibits a pattern of underperformance, and nothing is done, two things are going wrong. First, there is the underperformance itself, and second there is the failure to deal with it.
Root Causes of Chronic Underperformance
The primary root causes of chronic board member underperformance fall into two categories: mistakes made in the selection process and poor performance management.
Selection Process Mistakes
The most common recruitment mistakes we see are:
• “Friends and family” seats: In olden times, many directors were entirely selected through existing connections—the aptly named “old boys network.” This led to well-documented issues, and in general boards have become much more professional about the process. But the temptation to choose a candidate trusted by a board member often overshadows the need for a fair and thorough selection process. Once momentum builds around a fellow member’s recommendation, it can be hard for other board members to express concerns.
• Poor due diligence: References are essential to any good recruitment process. But they are often not done well. In our experience, the bigger the name of the candidate or the more well known they are to another member, the leaner the referencing process. An individual’s business success or a “rock star” name does not always correlate with board contribution.
• Wrong skill set: There are several specific skills that boards feel they need—some very technical—which they fill by appointing experts who lack broader strategic fluency. This often leads to under-contribution: The expert does not have the experience or perspective to go outside of their lane – so they don’t. To quote Ashley Summerfield, Egon Zehnder’s Global Board Practice co-leader, “Never hire a board member where a consultant will do.”
• Expired skill set: At the other end of the spectrum are board members who have been retired and out of the flow for so long that their experience and skills are out of date. They can no longer contribute effectively.
Poor Performance Management
Once a director is in place, many boards lack the discipline to manage performance effectively. We see the following pattern: Issues emerge, then there’s hope that they will go away, frustration when they don’t, and resignation that they are there to stay. The missing step? A real conversation with meaningful feedback. While the reasons for this are complex, common threads emerge:
• Inability to have difficult conversations with peers: Most board members have had substantial leadership responsibilities and know how to give feedback to subordinates. Unfortunately, most humans are challenged when it comes to giving feedback to peers. Boards are together only a few times per year, and it can feel easier to endure the annoyance than to risk creating a rift.
• Misaligned incentives: People like being on boards, and many want to be on other boards. Being the one who gives difficult feedback risks being labeled as “difficult,” leading to a safer “as long as I’m contributing, I’m doing my job” approach.
• Lack of supporting process: Many boards simply have not instituted processes to provide feedback, and as a result such conversations become even more problematic. Feedback is not gathered, responsibility for delivering messages is not clear, performance expectations are not set, and performance is not reviewed. The longer this goes on, the harder feedback becomes.
As a result, boards often avoid the conversation altogether and wait for something to do the job for them. That something can be term limits (still relatively uncommon), age limits (75 is the average for boards that have them – but many do not), or “divine intervention,” such as the director in question taking a job that creates a conflict. And board seats are wasted.
Strategies for Improving Underperformance
The solutions to board underperformance are not rocket science—the thinking is easy, but implementation can be hard. High-performing boards treat governance like the responsibility it is. Here is what they do:
Rigorously manage the board matrix.
Boards should always be clear on their needs, typically articulated through a board composition matrix that cross-references each member with their skills and experience.
Boards should rigorously define what constitutes expertise, to avoid the common problem of giving members too much credit (e.g., “Marketing reported to me, so I check that box.”). It is becoming more common for these matrices to be published (roughly two-thirds of the Fortune 500 do so), which provides incentives for mismatched board members to depart, as well as helping boards to avoid the “recruiting for a niche area” trap. Matrix management typically falls to the Nom/Gov Chair.
Do the diligence.
It cannot be said enough times: Referencing is essential. Doing this properly requires skill and impartiality. If that cannot be covered internally, it should be sought externally. References should look beyond the resume to the candidate’s demonstrated ability to share their insights constructively.
Establish clear expectations.
Board seats are not entitlements—they need to be continuously earned. Boards should be explicit about expectations (preparation, participation, contribution) and about how performance will be measured.
Instill a performance management process.
Sadly, many leaders receive little feedback once they reach a certain level of seniority. As a result, they are not used to being performance managed (anymore). Too often board performance reviews involve self-rating with no individual component. (Miraculously, these boards almost always grade themselves as doing really well, with most board members “above average”.)
Rigor is needed here: Members must have the ability to provide feedback and voice frustrations. External reviews are often important part of such a process.
Clarify who owns feedback.
Typically, this responsibility falls to the chair or lead independent director, with the Nom/Gov chair giving the board chair feedback. When ownership is clear, feedback feels like appropriate accountability, not a personal attack.
Be creative.
Building a culture of feedback is not easy and requires practice. Boards should experiment with different ways of giving feedback, not only annually, but all the time. For example, some boards use a short, post-meeting anonymous survey: How effective was the meeting, and what feedback is there for any/all members? However it is done, more and sooner works better than less and later.
Board Effectiveness: Addressing Underperformance Is Part of the Job
A board seat isn’t an achievement award. It’s a leadership role. Directors who underperform don’t just waste their own seat—they diminish the effectiveness of the entire board. Don’t wait for a term to expire or fate to intervene. Take the steps needed to make the most of every seat: the experience will be more rewarding, and the organization will be better served.
Chuck Gray, based in New York, is co-head of Egon Zehnder’s North American Board and CEO Practice.
Pam Warren, based in Toronto, is co-head of Egon Zehnder’s North American Board and CEO Practice.
Greig Schneider, based in Boston, is a partner and former leader of Egon Zehnder’s Global Leadership Advisory Practice.