Ep.544 Ron Lumbra
Will Bachman, Ron Lumbra
Will Bachman 00:02
Today’s episode is from a live event that Umbrex hosted in November 2023. With Ron lumber, who is the head of the board and CEO practice at Heidrick and struggles one of the largest five executive search firms in the world. The topic for this session was how to get on a corporate board. And Ron shares insider knowledge about the process, some of which is very non obvious. We recorded this as a streaming event. And so you’ll hear me asking my own questions as well as questions submitted via zoom chat. I hope you enjoy this discussion. For those of you who are ahead of the curve and have joined early. Thank you. I would love it if you could start putting in the chat. Any questions you have about this. So I’ll be kind of doing a facilitated discussion here. And incorporating questions that you put in chat. So if you have things that you want to cover today, put them in there, and we’ll make C make sure we get them covered. Hello, Ron, it is good to see you again. Well, it’s been much too long. Great to see you. So Ron, I thought we would give people like one minute after the top of the hour here to log in. We had as Megan was saying about 300 people sign up for this, I think 60 are on right now. I can see the participants ticking up. While we’re waiting for folks. I’d love it if everybody could put in the chat is where you are sitting today. It’s it’s always nice to see the range of where people are. And if you are interested in connecting with other attendees today, it’s all members of Umbrex and Veritux. You’re also welcome to put your LinkedIn URL in the chat, I think Meghan will send out a list of attendees so that you will be able to connect with folks. And I think we’re going to do a video today, right we will be sending out a video of today’s remarks. So if you’re in your pajamas or something you want to be seen by the people, you can turn the video off, but it’s otherwise it is nice if you have your video on. Okay, so it’s 1101. So that’s the official start time, nine people here. So I am so thrilled that Ron Lumba, who is the head of the CEO and board practice at Heidrick and struggles and his lead behind the scenes. I don’t know which ones but his lead the lead searches for Fortune 500 CEOs and board members that we would all recognize with us today talking about how to join a corporate board. What I thought we do is this kind of just no presentation is not going to walk us through PowerPoint pages to the conversation. Please put questions you have in the chat. I have come with some questions prepared a couple to start with Ron. First, before we get into the piece of how we can get on a corporate board, I would love to hear a bit of just a landscape of board roles. So my very unsophisticated understanding would be thinking about there’s fortune 500 companies, there’s all other public companies, there’s PE own portfolio companies, there’s family on companies would love to kind of get your segmentation, if you will of the market, and what types of people might be eligible or be considered for those different types of board roles. Just give us an overall landscape. We’ll do well thank you and welcome everyone, it’s a pleasure and honor to be able to speak with you. You framed it up very well. Well, and candidly, people often serve on a multitude of those types of segments. So I’ll sort of start from the top bit the Holy Grail, the public company, corporate board, that tends to be the one that people seek the most, it tends to be the one that’s the most prominent, it tends to be the one that’s the most difficult to join. So at the top of the pyramid, publicly traded companies, and then within that strata, the bigger the better. Large Cap Corporation, a fortune 500 Corporation, for example, tends to be what people really strive for. The challenge. And the difficulty with those is that many of them require prior board experience, which leads you to the other strata. What you often see after are smaller, publicly traded companies, then you see private companies, most of which are private equity backed. You also have a strata of family businesses. Some of those are quite large, and like working for a $13 billion family owned business right now. So very large, successful company, but building an independent board, or at least a board comprised of a number of independents to bring in that perspective. And then you have nonprofits, nonprofits have a variety of different characteristics. Some of them, however, are structured much like corporate boards. And those tend to be really wonderful kind of proving ground training experiences for people who are looking at corporate boards, because they have the same structures, same committee structure, they tend to use the same skills matrix and looking at talent for the boards. Those tend to work very well. And I distinguish those from the philanthropic board where you write a big check you get on the board and it’s the symphony board in a major city and their fifth
Ron Lumbra 05:00
Each directors and then mostly there is a wrote a big check. But then there’s a small Executive Committee, the board that actually runs and governs the place, I’m distinguishing and putting aside that from the ones that really look more like a corporate board. So that’s essentially the strata will and how it lays out. Thanks. I’m still unsophisticated around this. But I gotta say that, I’d love to have you explain the types of roles on a board. And some of us who are not as close to it would say, everyone has title a board member. So you might think of it as this undifferentiated group of experienced business people. But I think more sophisticated people understand that, actually, even though they don’t have titles of board member for digital marketing or board member for finance or board member for AsiaPac, there are actually specific roles that a board will seek to fill. Could you talk about that a little bit. And when companies are searching for a board member, it’s not just a generic, you know, a smart person, but there’ll be a specific, you know, demand that they’re trying to try to meet? Can you talk about that a bit? I’d be glad to it. I like how you framed it up, there’s no one calls us and says, Hey, get me a smart person who on my board, it is always incredibly specific. I want a financial expert who’s done business in China, who knows supply chain and happens to be female, that tends to be the level of specificity we get? Where does that all come from? So if you step back a bit, a typical board is comprised of about 10 people, some are a bit smaller, some are a bit larger, but 10 is a really good rule of thumb. When you look at most boards of the 10, you will find four or five, who fit into the CEO club. Or they I’ve run a big business club. So they might be former CEOs or CEOs in different sectors. They might be people that big business unit leaders, but they’ve got the operational Chuck’s credibility that they bring, they’ve run big institutions, they’ve overseen operations, that tends to be the number one in demand skill set, and generally 40 ish percent of a board are comprised of people like that, then you generally have three qualified financial experts, you’ve got to populate audit, you’ve got to populate the Finance Committee, you need people who are qualified financial experts to do so credibly. And so there are generally three seats that are very much focused on that. The number one skill set and for that are CFOs are by far, for a big enough company, someone will take a controller or treasurer or VP, finance, SVP finance, or they’ll take someone who’s from one of the big four, audit partner retired from one of the big four, that’s the other category that fills those three. So I share that because that’s seven out of 10 seats, I’ve essentially talked about what we’re talking about are one of the other. And well, that’s what you were alluding to earlier, that’s where companies get very specific and say, What are we wrestling with what voice we need in the boardroom. So what’s really hot now cyber and AI, cyber, and we need people who understand and are leading edge thinkers on cyber and AI, who can really lead us guide us help us with some of the challenges we don’t even know we’re going to confront. We in the past have seen demand and waves for business in Asia, knowing China, knowing India, knowing certain markets, we’ve seen supply chain, you may recall back in the early days of the pandemic, when supply chain was going crazy boards and companies are struggling. So supply chain really spiked as a skill set that people wanted to bring in. As an example, we’re seeing generally a lead increase, look for ESG. And it’s a little squishy, it’s a little ill defined. It is however, something that’s on the top of board’s minds, and finding people who are a bit ahead of thinking and experience in that way, are important. So I recruited recently, the former head of ESG for Caterpillar, to be equipment company to a board. And it was clearly they were looking for some dispersion of the head of ESG at a prominent company with a global perspective. But earlier had run. It had real expertise around cyber and had done some things the regulatory in Washington. So they’ve done a number of things. So the will to your point, what you see boards do as they put together this thing called A skills matrix. Like what are the various skills that we need? And it’s generally more things than you have number of seats. So you’re looking for people that can check more than one box? No ESG, no cyber, no operations, no China, no regulatory, depending on what the company is, of course, and so people that can check more boxes credibly tend to be more attractive board candidates.
Will Bachman 09:39
Can you talk a bit about why people want to be on the board? And yeah, we can have the sort of publicly announced reason oh, I want to serve whatever but in terms of the actual, you know, benefits that you get, talk a little bit about maybe for those different levels of boards, like what is the compensation typically, what sort of advantages To get in terms of relationships, or status or just learning, like, what, what is the actual benefit that someone gets out of a board? And also maybe, what’s the time commitment and demand on the on the on the demand side?
Ron Lumbra 10:13
So I answer that question a little bit through the lens of stage of life. And it matters where one is in their life and career. So for operating executives with a day job, still at that stage, generally, the notion is going on a board to expand skill set, get an outside perspective, learn from others in a different industry, because by definition, if you’re an operating executive sector, you must go on a board in a non competitive sector. So you’re gonna be bringing a lot of different experiences, perspectives back into your company, and your own skill set from that experience. And vice versa, you will bring to that company, whatever it is that you bring as an executive as a subject matter expert, knowing an industry or whatever it might be. So that tends to be the quid pro quo. As people get to the back end of their careers, however, the game changes. And to your point, will lots of people look at boards as what am I going to do in the next chapter, I no longer want the grind of running something, I no longer want the grind of traveling the world, you know, constantly be on airplanes, hustling for business, and all the operational pressures. But I don’t want to go to zero and play golf all day. Right? I want to do something else where I can contribute, give back, be engaged and stay engaged and stay relevant. And a lot of the conversations I have with people at that stage of the career are it’s about life management, as much as anything. So what I want to do with myself, and age really matters. And this is a little indelicate, but it’s true. You can’t really talk about age and various everything’s under sort of HR constraints and the operational world. board directors are not employees. Age is not only discussed, it’s in the proxy board, the age of board members are published in the proxy, and eight and boards have generally a very firm mandatory retirement age driven. And generally it’s between 72 and 75 years of age. It varies by company. So what you’ll see are people who generally go on boards in their late 50s, early 60s, and they will have a decade ish, maybe a little more than that long tenure on a board before they age off as it’s known. So a lot of times will what you’ll see is people who they really are trying to figure out how do I contribute? How do I give back? How do I stay relevant? How do I stay in the game? How do I continue to build my network in the board world? The other thing that people often think about and learn in the process is being on a board is so different than being an operating executive. I mean, it’s like an accordion to your private question about how much time you come together as a board. It’s intense. Socially, it’s intensive, because what you’re accomplishing are intense agendas, and then you disappear. You don’t come back together again until two or three months later. And then you have the same intense experience. So board culture and how the board functions coming together and going apart matters a lot. Generally, you’ll see boards meet a big corporates about five times a year, some meet six banks will meet 10. That’s an unusual sector though. But what will happen is you’ll see this sort of come together five ish times a year, there’ll be some committee meetings in the interim. Often committee meetings, however, are structured right around and adjacent to a board meeting. So for most people, unless you’re on audit, generally, your board your committee meeting will be contiguous with a with a proper board meeting, the committee meeting will be right there as well. In general, a large half corporate board, and it varies by size pretty dramatically, pays about 250. And in general, it’s half cash and half stock, with the option to take all in stock, if you would like with an obligation to accumulate a certain amount of share holdings over time. And generally, they target 5x annual comp board compensation. So at 250, they’re looking for you to ultimately have a million dollars in stock over time. You don’t have to get there and day one, but basically, you can’t really sell the shares. It’s disclosable and disclose Boivin as a board member. So generally, what people do is they join, they accumulate net worth in the company over time, and when they leave their liquid and can sell the stock, it is rarely utilized in terms of current cash flow. Because most people can’t really or at a stage to go on boards. It’s not about the current cash, they’re fine. From a cash standpoint, this is more of a net worth creation opportunity.
Will Bachman 14:27
Let’s go into the main topic. Now talk to us a bit about how we can position ourselves to get on a board. And that would probably also include a little bit of how does it happen particularly at some of the not the fortune 500 level. But, you know, our executive recruiters typically involved all the way down or is it personal relationships are? So I guess two part question there. How do we get on boards and how does it actually happen?
Ron Lumbra 14:54
Yeah. So a couple of things to think about. I’d like to link the supply and demand side of it. which is the the demand side is what are the board opportunities. And I articulated what the board typically looks like. So generally, if you’re not a CEO or CFO, you’re competing for those two or three other seats on board. So making sure and understanding what is your skill set or variety of skills that you bring in to that board, industry expertise, knowledge of the industry, strategic acumen, expertise around cyber ESG AI, other things that tend to be very topical, having that and bringing that into the board is very important. That’s essentially what the supply side brings to those seats, understanding how in the relationships that it takes a inboards I wish that our industry controlled work placements, but we don’t, about 40% of Corporate Directors are placed via a search firm 60 by direct what I call the private placement market, through relationships, people, you know, and I think in many cases, that could be a huge advantage to the people on this conversation, there’s the problem with our business or industry for everyone for any candidate is we are paid to introduce competition. So you can be a candidate in one of our searches, I promise you there gonna be a half dozen people similar, if not equal, also as part of the candidate pool. So you may be in the game. But we’re paid to have to introduce competition, the private placement market is far less competitive. It’s much more a board director know someone think they’d fit, it’d be a good cultural fit, they know our industry, they’re well connected in our industry, they can be very helpful, they’ll comport very well. And all of a sudden, sudden, you’ll see the announcement there on the board, what all came through that it wasn’t a particularly competitive situation, it was very much that private placement, relationship driven kind of opportunity. Now, you might think about how you trigger that an important analog I’d like to, to raise is that joining a board is a little bit like joining an elite Country Club, where if you walk in the front door and ask for an application, you’re not getting it. Because by definition, you’ve just demonstrated you don’t know how it works, right? It’s about knowing people, it’s about having them think highly of you. And all of a sudden they say, Hey, why don’t you come out to the club and have a lunch with me. Or once you go out and play around the golf and you think you’re playing around a golfer, the next thing, you know, you’re invited into the club. That’s how it works. So it’s very much marketing, and not sales. You’re not asking for the order, you’re not closing the deal. It’s about putting yourself out there in a demonstrable way. I’m interested in boards. I’m particularly astute at I Know regulated industries. I know the utility sector, I know the banking sector, whatever your expertise might be letting people know what your your give is what you’re bringing to the party, and you leave it out there. Because what’ll happen is, over time, an opportunity might come onto the radar screen of that individual you just marketed yourself to. And let’s say Oh, I remember that conversation, you should talk to XYZ. Like they have that skill set. They know the industry, they’re interested in a board. That’s really how that networking works. If you’re too aggressive and try to make the sale, it kind of is it puts people off. And it raises a question about cultural fit within a board environment. But that more sort of nuanced, gentle nudge marketing, making yourself present, but making yourself well known. And here’s the issue that people struggle with. people on this call are really smart. If parachuted into any number of boards can be hugely successful as a director. It’s not about that. It’s not the game of can I be an effective director? It’s a different games. Can I get on board? And it’s like a Venn diagram. There’s a little overlap. But the bottom line is not that big actually, that can I get on a board game is a completely different game. And that’s the game I would encourage you all to put your head in. Don’t Don’t take it personal about can I be effective director, I’m certain people on this board on this call can be effective directors. It’s a matter of how does the game work to get on board, networking matters. Letting people know your skill set and having the courage to differentiate yourself. A lot of people come into this too, if they answer yes to every question. I could do this. And I could do that. And I bring various skill sets. That may be true, but it’s also not memorable. And it’s not distinctive. People who come in have the courage to say I know banking, and I know regulation. And I know Washington and I know whatever it is, they become extraordinarily memorable as well. I’ve given up all these other possibilities, because I cut off my options. My reaction is No you didn’t, because they weren’t really options anyway. Because there were too generic. You’re going to be chosen likely where you really have expertise. And I think that’s really, really important to have the confidence when you market yourself to market. So with specificity because it makes you memorable. Okay,
Will Bachman 19:43
we had a question from a Roomba Tsai Guca about diversity. And I know that you’ve done a ton of work around diversity. So she asked, What trends are you seeing around diversity goals? And is interest waning around that or what are companies looking For and how do you? How should you use that to position yourself?
Ron Lumbra 20:03
I just saw a clip, you pronounced the name perfectly so well done, you will. So this is a friendly crowd and I trust this will be treated with discretion. And I’ll be very direct on this subject, which is a delicate subject. Diversity Matters intensely. And it has changed dramatically over the past several years. So I’m going to try to talk about more diversity and a bit of a timeline if I could, pre pandemic, kind of, you know, 20 Imagine yourself 2015 to 2020. In that timeframe, diversity mattered, but the real emphasis women on boards, women on boards, women on boards, and I give tremendous credit to the momentum of getting women on boards, the advocacy groups around women on boards really getting great traction. That was where the real emphasis was. The pandemic hits in March of 2020, the George Floyd incident was in on Memorial Day weekend of 2020. In August of 2020, I had 26, open boards, Director searches 100%, were looking for a black director. Just to put it in context for you mean a dramatic shift to oh my goodness, we don’t have enough ethnic diversity on our board. We’ve been caught naked on this, we’ve got to fix it. So there were that we had a two year window where there was intense focus on ethnic diversity on boards. And it started with black directors. It then morphed to Latino Asian directors. But But the focus intensely on on ethnic diversity. If you stop and look today, it feels much more now like it did back in 2018 2019. There’s still an interest in ethnic diversity. But most of the boards that were caught short and really embarrassed fix that problem been working really hard over the last couple of years. And now they feel like we have ample you can always take more, but we have ample ethnic diversity, back to the topic of women on boards that advocacy is maintained. And you’re starting to see with the topic of women on boards are real focus around 30%. And part of is coming from the shareholder advisory groups. Part of it’s coming from some exchanges. But there are boards that are saying, Look, we really need to have at least 30% women on boards. So to answer your question in a very specific way, yes, diversity matters. It has changed significantly from year to year over the past decade, based on what was going on in society. Today, it matters. The final thing I will say there was a period, kind of 2020 through 2023, that was so intensely focused on diversity, a number of non diverse, talented execs were getting phone calls, they’re getting calls again. So the non diverse CEO, for example, which is normally a really top notch skill set, there are a number of those people that were going on boards because the phone wasn’t ringing as boards attempted to address their diversity constraints that you will see now if you look at the board placements, you’ll see a number of non diverse CEOs in particular going on boards. That’s a little pent up supply that was built up during that, you know, 2020 to 2023 timeframe. So thanks for letting me be so specific and candid. But that’s that’s what’s going on in the market. That’s
Will Bachman 23:14
hugely helpful to get to get that direct view what’s going on, and that that stat of August 2020 Is is quite mind blowing. Getting back to your golf club analogy. I’m like the guy who doesn’t golf hasn’t been to the golf club doesn’t know where the golf club is like, doesn’t mean so I would love to hear a little bit more about these unwritten rules. And I see people do doing different things like some people will put in their LinkedIn headline, like open to board roles, get more specific, what would be appropriate, what would be considered gauche, you know, quiet conversations saying, hey, as I move into the stage of my career, I’m open to board roles keeping in mind or what sort of is totally considered appropriate and what would be considered being too forward? Explain those rules a little bit to us. Yeah.
Ron Lumbra 23:58
So one of the things that happens a lot in my world is that people want to onboard because they they read about the trends. Oh, there’s a there’s an interest in women on boards or interests on AI on boards. And I know AI. So considering that there’s a step that was missed. Well, that I think is really important because it will talk to someone’s authenticity and legitimacy as a candidate. Do you care about governance? Have you thought about governance matters, just governance matter to you? And where that really comes to bear is if you think about at the end of the process, you’ll Steven Covey phrase begin with the end in mind when you’re referenced for a board or they’re actually people who are on boards that are going to be part of your references, or are going to be just a bunch of operating people around you who also aren’t anywhere near board so they actually don’t know how to think about you as a board member. So playing up getting exposure to governance, understanding governance, and from a consulting standpoint, it comes in a lot of ways. I have addressed boards routinely in my career. I’m an advisor to boards. I’ve gone to the nonprofit board because I care about the mission. But I also wanted to get in the game of governance. I’ve taken certain training to help understand governance or becoming an expert in governance. And when I say expert, I want to be careful not to push that too far, because sometimes that’s pushed too far, where people become a little bit the governance police, if you will, or sometimes not so affectionately known as the governance meaning, that’s not what it’s about either. It’s about expertise and wisdom and judgment and decision making. But within the context of I care about good governance, I know what good governance looks like, I may not have been on a board before a corporate board. But I’ve done lots of things in my life to get great exposure. And where you see this in operating executives, it’s an automatic for a CFO, if you’re a CFO who’s never been on a board before you can say oh wait, I report to the board. Every single meeting, I meet with the audit committee, every single board meeting. So you, you can demonstrate I work with boards, sometimes CHR OHS can do that. I work closely with the head of the Comp Committee. I’ve gotten a sense for the compensation committee and how it works. I’m close to members of that board. So whatever angle might be there for you to get close to boards. So you can then the conversation demonstrated knowledge of board culture, of board functioning of board the board agenda and what matters and a familiarity with how people comport within a board. Huge difference maker. So it’s the way you go will from not being a golfer at all anyway, Country Club to, you know, I may not be a scratch golfer. But you know, I know how the game works, and I have a feel for it. And that can be demonstrated, because what you’re solving for boards are mortified about making a mistake, especially corporate boards. And here’s the deal. If you hire an operating executive, and it’s the wrong executive, you fire them and get another person and you move on. Getting rid of a director, especially in a public company, environment is painful, it’s public, it’s it needs to be announced to the marketplace. It’s embarrassing to both parties if it’s pre retirement. So it’s hard to get rid of a director shockingly, much harder than it is for an operating executive who’s underperforming. So boards create a very high bar to say, I don’t want to bring on anyone who’s going to be disruptive, not fit our culture, not out of value, take up a seat, I need to really make sure they understand what they’re doing when they get in. And that’s why the bar so high.
Will Bachman 27:29
Uri Narcisse asks a question. Some business schools are offering board directors certification programs. So are those helpful to get on a board? And there’s also probably the National Association of Corporate Directors that may offer some kind of programs, are those helpful, or those just be considered, like completely irrelevant for decision makers.
Ron Lumbra 27:50
Whether you’ve gone through one or not is irrelevant. I’ve not had one time and all my experience, say, Oh, I’m glad the person went to that Wharton program. Now the rant we like. However, going through these programs makes a person more knowledgeable, more sort of contemporary and topical on the subjects. The themes around governance makes you a better interviewer, or interviewee, rather, someone who really is able to tell their story in a better way. So if you’d haven’t the experience, I actually do encourage participation in those programs. But I don’t like to oversell them. Because the mistake on the flip side is what I mentioned earlier, NACD is notorious for this, they have a number of good programs, but you don’t want to come out of them and sounding like you just come out of an ACD workshop. Because you sound like someone who’s acted as an academic approach to boards as opposed to a visceral, I get business. I know this industry, I have wisdom and judgment I can bring that’s what boards are after. So use them, use them. In the context. I’m trying to get smarter about governance. I’m trying to be more conversational about hot governance topics. That’s where the real value add is. And
Will Bachman 28:59
one of your earlier answers you were talking about how you know, to demonstrate that you care about governance, one way to do that would be get on a nonprofit board. Talk a little and that might be one of the sounds like one of the easier first steps for a lot of people to get on a nonprofit board. Can you talk a bit more about what type of nonprofit might be good? And what specific role on the board? Should you aim to be on a specific committee? Like if you are going to do that? What, what sort of role and what should you be able to say about your experience on that nonprofit board?
Ron Lumbra 29:31
So I have a couple of reactions. One is more than human sort of fundamental reaction, which is, at first and foremost has to be a subject, a mission that makes sense for you that you’re passionate about and I it doesn’t matter what you could care about the environment. You care about arts, you care about education, your health and wellness. It doesn’t matter as long as you care because these things are work. And you don’t want to be on your third board meeting which is oh I did this as a means to an end. but I’m not really that interested in the topic, I don’t really like my fellow directors, it’s not really inspiring me, you will be a poor director, by definition in that environment, it’d be hard to be enthusiastic. So solve for what do I care about. And it doesn’t matter, there’s not no one topic that’s more interesting or important than another because you care about it, you’re gonna lean in, you’re going to bring your best to it. And you’re going to impress your fellow directors. And that’s what it’s about. In terms of committees. It aligns a bit by what you bring in naturally. So if you’re a financial expert, you’re going on the audit committee, the finance committee, that will be a natural fit for you. There’s the Governance Committee, which is really a good committee for people to go on, because it’s about succession on the board. It’s about how boards work. It’s about governance processes, it makes one a very much more astute observer of boards and board governance, the compensation committee is a good one, because that’s another value add, you bring onto boards in the future understanding compensation, the dynamics of that. So it doesn’t matter as much which one, but engaging in committees is where the work happens. Most board chairs will have been former committee chairs. So getting on a committee where you care and can grow and develop and all of a sudden be tapped like I’m chairing the Comp Committee of governance committee. Oh, they’re doing chair succession, I’m now the board chair, that makes a big difference. Because as you try to go to a corporate board from a nonprofit, people will look at you and say, Oh, they’ll a greater amongst equals, and that’s a phrase Well, I attribute to you. In the past, you know, you’ve been able to distinguish yourself on the team of a board where the board has rallied around you and your leadership, you’ve been asked to chair the board that speaks volumes for your ability to comport well on the board to be seen as a leader. So you grow with them. And this takes time. This takes time. But generally, boards are staffed over the arc of time, I mentioned before, for 10 years, generally more than a decade. So this doesn’t have to happen on the day you join. If you like the mission, the theme, you’re adding value, you will find yourself on committees, you will find yourself running a committee could find yourself chairing the board, it will be a natural evolution.
Will Bachman 32:09
So let’s say that we’ve we’ve done our work, we’ve done our relationship building over time, and we get the call, we get the request to join the interview process. So now we’re in the consideration set. You are often you know, the one of the first steps in that process, and you see it all the way through. Talk to us about the interview process. What are the types of questions that you ask candidates? What are the types of questions that boards as candidates? And what else in that interview vetting process? Should we know about? Are they going to, you know, be on a credit check? Are they going to look at my social media posts? Are they going to? What else are they going to look at. So talk to us about the interview and vetting process.
Ron Lumbra 32:49
The good news is to get into the mix is a real positive testament to the candidate. Because what will happen on a typical search is we will get the rebound from a client understand deeply what they look for. And let’s be clear, we’re in a service business just like all of you, we are trying to look great in front of clients. So they’ll hire us again. So when we respond, we want to show we’ve listened very carefully, we’ve delivered what they’ve asked for, and we’ve pushed the envelope a little bit. So we’ll come up with a long list for them to consider have generally 15 to 20 ideas, the individuals on the long list will not know their long list, no one’s gone to them and ask for their permission, their interest, you just know they’re interested in a board. That’s all you need to really know at that stage of a process. And so you’ll talk about 15 to 20 people 10 to 12 will be right on spec. And you’ll take two or three and say look, this person’s a little off. But here’s why we think you should consider that there’s something special about what they’ve done something you hadn’t thought about. Because you do want to press the client within the bounds of reason. That’s what we’re trying to achieve from they’re working with a client, they’re going to down select to a half a dozen people, they really think these are the top six, reach out to them. So if you ever get the outreach out, you know, you’ve already been down selected to reprocess and it speaks very highly for how you’ve come out in the process. So I’m gonna stop that. And now go to the candidate side of this whole conversation. When we’re building that long list, it’s all about major and minor, major and minor. What’s your major? What’s your real expertise that you bring that fits with our client wants? Oh, and what else are they getting? Remember I mentioned that skills matrix, there are more boxes that need to be checked than there are seats on the board. So you need people who check more than one box. So you’d love to have someone in I’ll just make this up. So you’re looking for a financial expert. So great financial expert is the major one else has this person done. Oh, they had a stint in operations. They had a stint in Europe. They also oversaw it for a period when that was collapsed under them organizationally due to an organizational change. He, those are the kinds of stories that really make a candidacy robust, is not only the cover the major that goes without saying, here’s all the other things you get with this individual, then the next thing is cultural fit. How do they comport within a board? How do they operate within a board function? Have they demonstrated in their career, the ability to work in a team like setting, so there, it really shifts from operating exec or person who gets stuff done, you know, tasks, completed with great success on to the next task to however, worked in this kind of setting. And I think that’s where people on this call have a great advantage. You’ve worked in so many situations where it’s been committee oriented, you have to bring a diverse group of people on side, that skill set is really taken for granted. And so bringing that to the forefront of here’s what I’ve done here, I’ve done in my professional career, here’s what I can bring into a board. Here’s how I would comport within a board. And here are all the examples in my career of having done that, we really look for that. Because at the end of the day, we’re trying to bring to a client’s a great shortlist of people who they can’t decide between the buzzer also good. And they would all fit so well. And they’re torn about who to bring. And if ultimately what it is for our businesses. Oh, great, when the next board opening happens, they’re gonna call us it’s not competitive, because we’re so happy with the outcome. So that’s ultimately what to think about. What’s your major? What’s your minor? What are your examples of comporting? And working effectively in a board? Like say, the fourth, that’s often taken for granted? Is the logistics. Can you do this? Do you have schedule control to be able to do this? Does it conflict with other things that you have on your plate? So it’s going to be laughable and simplistic but, you know, for people that are really top notch for candidates, and let’s say are on a couple boards already demonstrably good directors proven? The biggest challenge is calendar. On that third board, will they have conflicts with their existing boards? And often they do and it will eliminate very good candidates. So whether it’s conflict with your board conflict with your day job, other claimants in your life, the basic rudiments of can I do this. Geography very simply comes in, a lot of people were looking for their first born, they could live on the east coast, they all think of Oregon Seattle, no problem, I can do it. Well, that’s true at that moment in time, because you’re anxious to go on a board, five years in the notion of you know, traveling to Seattle five, six times a year, maybe less appealing. So people really look carefully about geography, is this person in our ecosystem? Are they likely going to be able to do this for a period of time. And so when you think about boards and your own journey to a board, Do not overlook geography, some of the first boards people go on are in the local geography. They’re known, they’re trusted, they’re referenceable, they’re seen as a good cultural fit. And it’s a it’s a fact that sometimes people gloss over, but it really
Will Bachman 37:53
matters. And what sort of vetting should people expect? So like, what’s, what’s the standard, and for board members, other than a normal, like criminal background check what other things would be part of that mix? Yeah.
Ron Lumbra 38:06
So you have to put this in two categories will formal and informal. So formal process is we will do some light off the record background checks on people, as we just know, a lot of people and it’s our job to know a lot of people. So if a person is coming from a certain company, certain on a certain board where we will know someone there, and we’ll have a quick off the record conversation, you know, tell me about the person, you know, any issues, any concerns, just to make sure that we’ve at the high level sort of gotten a good sense of the person. At the end of the process, two things happen. A formal background records check. And that’s the, you know, the FBI police records, looking for anything that might have happened there. And then we take business references, and generally the process is for business references will take. And these are conversations with people who work with the individual serve on a board with the individual know the individual from whatever vantage point. So that file background records, check in the form of references, go to the General Counsel of the company, and are in the permanent or in their file for keeping to make sure that everything is very clean. Informally, here’s what really happens. During a process a candidate will pop up. And all of a sudden, you’ll hear a board member, I didn’t know where say, Oh, I know someone who was on that forum call. So there are all kinds of back channel conversations that happen to informally vet candidates. And it’s one of those things that there’s little that can be done about it. But it’s really important to know that it’s going on, and I had a candidate just the other day happen to be a Latino financial expert, recruited to a board. And we’re the group of people and we’re talking about this background process. And he said something like, Well, you know, people say that there’s background is caused a lot but I wanted to support it. No one made any calls on me. A person in the group said, I got a call on you. This person happen to be on the board of the company, and these guys had no idea No ideas that happened. And it was it was a good laugh among all of us. But the point being these calls these back channel calls get made, whether you like it or not, whether you want it or not. And so you just have to understand that your every person you touch, every person you interface with or have worked with in the past is a potential one of these informal contacts, you hope they’re more positive in your history and background and negative since they stumbled on to someone that wasn’t good, it could be harmful. But that is exactly what goes on.
Will Bachman 40:28
Someone asked me to ask you, given that executive search firms fill about 40% of the roles. What should we do to make sure that Heidrick and struggles is at least aware of our interest? You know, we don’t want to be too forward to your point earlier. But should we submit our resume to you and your team and other firms? Should we have someone who, you know, introduce us to you? Like how should people get in front of executive search firms just to indicate their interest?
Ron Lumbra 40:54
Yes, so absolutely, Your resume should be on file with all the major firms. Here’s how we work. We all have board practices that are centrally administered and manage. So you’ll have a variety of partners like myself. So think about it like a like a milkshake with a bunch of straws. The straws are the partners like myself, but the milkshake is one consistent area that the board research function and energy. So if you get introduced the practice by any one of the partners, you go right into the board database, and you become a shared asset that people could look at. So a new search opens, like, oh, we have in that milkshake, who’s in that inventory of people that would fit the spec that we’re looking at, then that’s where your name will pop up. So you don’t need to talk to every single person in a firm. But knowing someone, having your paperwork in front of each of the firms is important, because you never know which firm will have a particular engagement where you will be right. So I think that’s a really good thing to do.
Will Bachman 41:51
You talked earlier about the typical compensation for board member at a fortune 500 or a larger public company, you know, 250,000 per year, what’s the typical compensation at some of the, you know, smaller public companies or private equity owned portfolio companies and family companies? What’s the sort of the typical ranges that you’d see. So
Ron Lumbra 42:12
generally, what happens is the smaller companies will downsize a bit on Comm. So if you take a, say, a 500 million to a billion dollar ish billion and a half kind of public company, their compensation is a lot closer to 150. From the 250, I mentioned, took an Uber large cap company, they’re probably closer to 350. So there is a sliding scale tied to revenues, for sure. So if you take a smaller company, it’s probably closer to 100 150. At the small end, similar for private equity, the private equity situations are sometimes different in that they’ll offer things like CO investment opportunities, and other things. So it’s not as straightforward a comp program. For that reason, sometimes, they’ll bring in someone who knows the sector really well, and may have a point of view on the company, when they’re excited to be on the board, they got a chance to invest in the company. So they’ll trade perhaps cash comp, in some cases for ability to invest in equity. So it’s a little different, but its size is about the same. Family owned businesses tend to try to mirror the public company equivalent based on the similar revenues, but they do it in cash, they generally don’t have the equity program, the way that private equity or public company would have tends to be more cash equivalent. So if you went on a very large family owned enterprise, it the comp would be very comparable. And what you see is public company comp. And the reason they do it that way is of you as well. We want the caliber of executives that would be on a similar public company. And the opportunity cost for that individual is what they would we have to make up for. So we’re going to pay them similarly. So they can be quite lucrative. There aren’t that many of them, but they can be quite lucrative.
Will Bachman 43:52
And then Fernando asked the question about how can younger professionals you know, in their 40s 50s, join a board of directors or 30s, even sounds like you laid out the kind of seven out of 10 roles. If you’re interested in trying to get into one of those three roles. What other tips do you have, you haven’t already mentioned about how to position yourself?
Ron Lumbra 44:12
So one of the most challenging things I mentioned as very openly early in the conversation, it’s a real challenge, because there are times when use is really valued. Where people or companies said, Look, we need a contemporary director with digital people, we’re really focused on digital view as well. We need somebody who’s a digital native, we want someone whose age starts with a three or four on this board because they’re a lot closer. And that was a real trend. What you found, however, is that when crises hit, for example, when the pandemic first hit our airline client out and they had a contemporary digital director quite a bit younger than most of them on board. And the feedback you got was essentially look when it really hit the fan this person was not helpful. They just didn’t have the life experience. They hadn’t been through crises before, in a big leadership role, they couldn’t really be helpful to us. So you have to understand what what you’re able to bring at any point in time in your career. My experience is that most people who can solve that first puzzle cannot be effective on a board, haven’t thought carefully about in what circumstances. And I think it’s really important to know the average age of a first time director on a publicly traded larger cap board is 58. Just to put in context, so when you show up and your age starts with a three, look at the existing board, you could be the youngest person on that board, not by a day, but by a decade, or 15 years. So you have to put yourself in the mode of are they going to listen to me? Am I going to be impactful on this board? Am I going to be an effective director, if not an effective director, you’re not getting your second board? So this is a bit of a trap for people to be really cognizant and self aware of? Which is, yes, you can get on board. Why do they want you? Where can you be most effective? Can you really outperform so that you become a really respected fellow director to go on other boards, it’s a very delicate thing. My advice is people who are at that stage position, it’s all about positioning for the right time. So it’s getting the right experiences, getting the right network built, getting exposure to boards. So you have people who are actually board members who can speak to you and about you. That’s what it’s really about. Rather than solving for the result of getting on board. It’s a great time to position so it’s not too late. If you know what I mean, you get to the back end of your career, you’ve got a big skills gap, and it’s too late to fix. That’s what being your 30s and 40s positioning for Borges is about in my experience. It’ll be the occasional person at that stage of life who goes on the board for some particular reason. Nothing wrong with it. But it’s unusual, especially in the big corporates. Andre
Will Bachman 46:52
Chari asked the question about, can you share any examples. And I think we can focus on sort of the interview and vetting process, not necessarily the service on the board, but through that process of someone who was a real superstar. And this could be sanitized or unsanitized. And also, definitely probably sanitize stories of anyone that entered that process was doing well and then crashed and burned. What did they do, so that we can learn to avoid that someone who crashed and burned through the vetting process? So,
Ron Lumbra 47:21
yes, I have an example. And this is a public company CEO. And so it gives me no pleasure to tell you the story, I will protect the innocent here. Not sure I’m sure the name of this a person had been a public company CEO, who could not break out of the I’m running a place mode, no matter how much intellectually they knew going on a board is different. I’ve got to check my operational leader mentality and be an advisor, be a fellow director be a supporter of the leadership team, they could not help themselves. And so this is a person who on paper could not have been a better fit, right industry background, extraordinary track record, good person, you know, you know, personally over a beer, a glass of wine, you know, fun conversation, but just could not help themselves from overstepping the bounds. And it became evident as the process went forward. And then when you started doing the informal referencing around this person in their own board, it was like, you know, handful to manage, really, you know, sort of sort of respected the board, but definitely definitely want to do what they want to do, muscled the board along, that the candidacy completely crashed for the league Kennedy. So the moral of the story, I think, in that example, is understanding that whatever our day jobs are, there’s a different role to be served when on a board. And when you’re interviewing for another day job, you bring all your day job stuff, 100%, because that’s what putting you in the a plus category for the day job. It’s what could harm you terribly for a board because it’s not the day job. So it’s being able to say all that I know and all I am in my day job I can bring to you and aboard. But I will act like a board member, collegial sharing, supporting good working relationship with the management team, knowing when you advise knowing when to step back and get out of the way that was really an important learning from that crash and burn. We
Will Bachman 49:15
are 10 minutes from the top of the hour. And I will just observe that this has been a popular session so far. We still have almost 100% of the people who joined at the beginning are still with us. And that’s always one measure I look at so 94 participants still with us before you leave and jump off folks. In the next 10 minutes before you do hit the leave button. It would be awesome. If before you leave, you could put in the chat. What was one thing today that you heard from Ron, that was interesting, surprising, particularly helpful. Sometimes speakers don’t know it might have been an offhand comment that listeners found particularly useful, and we want to share those with Ron so that would be a real gift if you could do that before you leave. The next question I have Ron is You mentioned earlier how there’s this Venn diagram between someone who’s very qualified to serve and capable, and someone who has raised their profile sufficiently to get awareness, you know, to be, have decision makers aware of them. Talk to us and maybe a few examples of what people have done outside of just doing their own job well, of raising awareness, you know, whether that might have been people who did some writing, or did the speaking on the side or, you know, did something on the side to help raise their awareness, maybe volunteered for the industry association or something? What are some things you’ve seen people do to raise awareness? I’m
Ron Lumbra 50:39
so happy that question was raised. Because I’ve been holding this one. I didn’t want to be too presumptuous about the audience. But I have a sense, when I look at people who come from the consulting business, then go on board, there are a few themes. One is they generally are known as being a real player in the industry they cover. So they might be, you know, retired Bain partner in retail. But how do they get our retail board? Well, they probably got to know a board and a CEO through a consulting engagement over a period of years, they became a personal comfort, they clearly know the industry and sector, they clearly have a great strategic mind. They clearly know people, they know trends, it’s clear why they would go on a board. And I think that expertise, and engagement kind of leaning in in a very assertive way, within a function you may cover within an industry you may cover. Don’t take that for granted. Because if you look at the model, I’m always about what’s the mom Who else have done this, you see people out of consulting on boards all the time. Inevitably, it’s not because Oh, X McKinsey person, generally big brained and thinker wrong. Oh, this person led the chemicals practice and McKinsey, they’re on a chemicals board, they demonstrated they knew the industry. And then from that, they joined another board, because that’s what they get in their board shops. So that that’s a very interesting model to know the industry expertise, the functional expertise, and unapologetically lean into it. That’s where the most credibility will come and where you’ll spike in that skills matrix.
Will Bachman 52:10
We had questions from Spin biker and his experience on advisory boards for startups. So not a formal Board Advisory Board. What benefit if any, does that bring to your feasibility of being on a board of directors,
Ron Lumbra 52:22
not as much as you would think the strata for a startup is usually quite small. And so they’re not dealing with the same issues that larger boards deal with in terms of governance of scale and scope of the business they’re overseeing. There’s nothing wrong with it doesn’t hurt, but it doesn’t particularly leverage much in terms of a larger, larger board role.
Will Bachman 52:42
Someone asked a question about independent consultants. So you mentioned sort of the former Bain partner and so forth. What chance, if any, do those of us on the call, which is almost all of us here as independent consultants? Do you ever see independent consultants getting called on onto boards? And how can we, you know, best position ourselves, given that we’re not at the platform of a Bain, McKinsey, BCG, etc.
Ron Lumbra 53:04
So it’s the private placement market that we talked about earlier. And my experience has been it’s very much where there are just such trusted relationships that have been built over time that the board will look at the individual as one of us. It’s truly the trusted adviser. And quite candidly, if I can get one of you on the board for 100,000 150 depend on the size of the company a couple $100,000 a year, it’s actually cheaper than hiring you outside. And you’re going to be part of us anyway. So you see, in the smaller and midsize companies that structure, you’ll see people go on and you’ll look at the background of the resume. And you’ll say okay, I don’t quite see what it is, other than, ah, than an advisor to this company to these individuals truly trusted. And where you see the flip of this world, if you see a company that’s earlier stage, and has built its entire early board with people like that trusted advisors, trusted confidants, investors, they struggle like crazy to bring in their first truly independent director, because they’re so worried about screwing up culture. Oh, we built this great culture. We liked the board. This outsiders, we don’t know that, well, we’re not comfortable. We’ve never brought in someone yet. We haven’t known as well. So play that game. Unknown really well, I’m trusted, they know I’m not going to screw this thing up. I’m not going to be the disruptive board member, you’ve got to know me. And so being able to position yourself of not only going to be your advisor, I can be on your board one day is not a bad strategy, especially for a smaller medium sized company.
Will Bachman 54:35
Ron, you talked about the formal commitment of attending the committee meetings and the actual full board meeting. But outside of that, and outside of that and just reviewing the materials, what is the typical additional commitment in terms of time and expectations? Other than maybe the audit committee are you expected to be having regular ongoing conversations with CEOs are expected to be touring for facilities are i What is sort of the expectation between those five meetings per year?
Ron Lumbra 55:04
Generally not, there’s generally a very de minimis requirement. First year is definitely harder because the touring facilities orientation getting to know and learn the business, that generally takes more time because you’re asked to do these things and you enthusiastically want to do you want to get to know the company and add more value more quickly. The things to look out for. And I’m talking about public companies, when I say this, an activist, CEO succession, or m&a, those are the big three that you have to watch out for. Because the moment that happens, you have special committees formed, you will have all kinds of I’ve had to act in situations with big public companies that you’ve read about this year. These boards are meeting weekly, with special committees and the full Board invited to all committee meetings, and these guys have working so much harder than they ever signed up for. It’s been almost a near full time job dealing with these activists. This often leads to CEO succession. So the problem gets worse. So those are the things I were advising, just ask those three questions. How imminent Are any of those three? And then if so, be ready to really engage? And then you have to ask yourself, Okay, if I’m a sitting CEO, I don’t have time for this, right? You can have your committee I got a company around, I can’t. So the board will look for the people that can do heavy lifting. That could be one of you. Your advantage competitive advantage could be I have scheduled control, and I can serve on a special committee. I can dig it because boards have some people that are heavy lifters, and some that are light touch, but they’re heavy wisdom, judgment kind of people. So being a heavy lifter on a board is not a bad thing, and it’s truly differentiated.
Will Bachman 56:43
Ron, this was an incredibly useful session, I learned so much that I as I’ve said so many messages to the whole group and direct messages. We will send to you, Ron, these takeaways that people shared in case you want to look at those. And if you want to share with us a link to if people want to submit their resume to Heidrick and struggles to be considered we will share that with everyone who signed up today. Okay, thanks, everyone. We’ll leave this open just for a minute. So for people who wanted to put their final chat in and we’ll wrap it here, Ron, this was amazing. Thank you. Great.
Ron Lumbra 57:15
Thank you all.