Published: January 16, 2006
AGENDA

In an effort to thoroughly understand the business of the companies they serve, more directors are getting out of the boardroom and into the trenches. They’re developing relationships with employees, visiting regional offices and retail outlets, and touring company facilities, all in an attempt to comprehend the real-life context of their companies’ challenges.
“There are [directors] who are looking for something more than just ratio analysis tutorials or finance for non-financial managers,” says Jeffrey Sonnenfeld, a director at several companies, including TheStreet.com, and a Lester Crown Professor of Leadership and senior associate dean at Yale University’s School of Management. “They’re looking to understand something about the nature of their particular industry.”

Citizens Communications, for example, has implemented a program that pairs some of the company’s directors with members of its senior management team. The brainchild of the company’s CEO, Mary Wilderotter, the program primarily seeks to offer the executives the benefit of a director’s expertise. But it’s serving to educate directors about the business, too.

“It’s given me a window into some of the operational opportunities and challenges that are being faced by this company,” says Larraine Se-gil, who was elected to the board of the $2.2 billion telecommunications company in March.

Peter Hayes, the company’s senior vice president of sales, marketing and business development – and the executive with whom Segil has been assigned to share her strategic-alliance and business-relationship expertise -agrees the relationship has been mutually beneficial.

Sometimes in a board meeting I only get an hour to cover a lot of material,” says Hayes. “This gives me a chance to give [Segil] a little bit more information.”

Other companies have adopted mentor-ship programs similar to the one in place at Citizens Communications, though many of them are not publicized, says Kevin Klock, corporate governance analyst and senior member of chapter relations at the National Association of Corporate Directors. Boards are implementing these new practices in the wake of the recent series of corporate scandals that helped to drive home the extent of directors’ fiduciary duties. Directors and C-level executives are eager to discharge those responsibilities properly, and are beginning to appreciate the extent of the industry knowledge necessary do so.

“Sometimes it’s hard to ask the basic question behind some of the metrics and jargon for fear it will reveal how little you actually know about the business,” Sonnenfeld says.

Both Sonnenfeld and Klock emphasize the importance of balance in these relationships, which, they say, ideally should never become too comfortable or too adversarial. In the context of such pairings, “the board member can become an unwitting tool or agent of a disaffected interest group,” Sonnenfeld warns. He gives the example of an executive who is performing poorly and therefore has incentive to present an inaccurate or less than comprehensive view of the business to a new director.

Segil maintains that such a scenario would be highly unlikely in the context of Citizens Communications’ program, since Wilderrotter clearly defined the director-participants’ roles at the start. Wilderrotter specified that the directors were to provide guidance in the areas of their expertise and that the program was not intended to require participating board members to formally report back to the board at large. Further, says Segil, Citizens’ directors spend no more than one to two hours with their counterparts per quarter and get the bulk of their information about the company’s business from other sources.

Sonnenfeld had more advice for companies attempting these kinds of programs.
“It’s a good idea [to avoid] the one-on-one and have perhaps two directors meet with sets of several next-line managers, who they can meet with one at a time, so they’re not drawing info from too limited a group, and more than one person is there as a witness to the exchange,” he says.

In many cases, director/executive mentorship programs are supplementing other methods of educating board members about their companies’ industries. Many of those methods, such as requiring directors to spend time getting to know their companies’ accounts, have become de rigueur. The board of the $608 million HR services provider Gevity devotes one day a year to that, says Sonnenfeld, who sits on the company’s board.

The soon-to-be standard tour of the company’s facilities may be the most pervasive method of educating a company’s board about company and industry practices. Many companies, including Citizens Communications and Healthsouth, require that of their directors.

Home Depot founder Ken Langone is perhaps the father of exercises aimed at getting directors involved in their companies’ day-to-day goings on. He started visiting the company’s stores on his own back in 1982.

“You learn whether customers like shopping in your store, what’s on the associates’ minds, whether they’re trained or not,” he says. “If I’m going to sit in a room and look at the numbers and see that something is wrong, with the benefit of a store-walk I know why.”