Korn Ferry’s Anthony Goodman on the Importance of Board Evaluations

by | Dec 6, 2022

BA Speaks to Korn Ferry Partner Anthony Goodman on Board Effectiveness, Universal Proxy and More

Korn Ferry’s Anthony Goodman on the Importance of Board Evaluations via the Boardroom Alpha podcast

Anthony Co-authored, in conjunction with Gibson Dunn, their annual review of public company board evaluations. In an era where board scrutiny and accountability are at an all-time high, board evaluations are of the utmost importance.

In addition, a renewed focus on the evaluations of individual directors is becoming more front and center, particularly in light of the new Universal Proxy.

Read the full Korn Ferry / Gibson Dunn report here

At a high-level, Anthony left the report with three primary takeaways:

  1. ✔️ 60% of reported companies are reviewing individual board members in addition to the board and committees as a whole
  2. ✔️ More than 50% of companies are now using interviews as a methodology in lieu of, in their view, less effective surveys
  3. ❌ Less than 25% of companies actually disclosed changes they made following evaluations, a real missed opportunity for companies to share changes

Have a listen as Anthony gives his insight on much more in the world of corp governance, activism, and board activity.

Topics Discussed

  • Background on Anthony
  • Board Evaluations in 2022
  • Board composition and challenges
  • Individual director assessment and Universal Proxy
  • Company benchmarking
  • Looking ahead into 2023 themes

About Anthony Goodman

Anthony Goodman is a Senior Client Partner and the leader of the North American Board Effectiveness practice, based in the firm’s Boston office. Anthony advises public and private company boards, including large nonprofits, mutual funds and family influenced businesses on a range of confidential matters. He is an experienced advisor to non-executive directors and C-suite executive teams in the United States and Europe on oversight of Environmental, Social and Governance (ESG) opportunities and risks, and improved relationships with stakeholders.​

Transcript: Korn Ferry’s Anthony Goodman on the Importance of Board Evaluations

David Drapkin (Boardroom Alpha)
Hey everyone, welcome back to Know Who Drives Return from Boardroom Alpha. Today we’re gonna be talking boards of directors, universal proxies, governance, and much more with Anthony Goodman, who’s a Senior Partner and the Head of Korn Ferry’s Board Effectiveness practice. Anthony, really good to see you again. And thanks so much for joining us today.

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
Well, thank you for having me David.

David Drapkin (Boardroom Alpha)
So how about you know, a minute or two on on your background? Who’s Anthony? Where does he come from?

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
Well originally comes from the UK. Been in the US now about 23 years. You know, when I got off the metaphorical boat, because it’s really a plane, I was told, you know, you need to keep your accent because it puts at least 50 points on your IQ. And I need all the help I can get David. Well, I’ve been in been involved in the board space now for more than 20 years. I head up as you say, the board effectiveness practice at Korn Ferry, which is the group that does board evaluations, board, succession planning, and other forms of consulting with boards. Prior to that I was with a competitor search firm in a similar role. And prior to that I was with a group that brought board directors together to share best practices with each other. So had a lot of experience listening to board directors talk about what works and what doesn’t, and now have the ability to bring that understanding of best practice to boards directly.

David Drapkin (Boardroom Alpha)
So to kick it off, and he recently published, in conjunction with Gibson Dunn an updated report on what’s called a company board evaluation. So you’ll first can you tell us a little bit exactly what what that means? And what, what and what went into that report?

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
Yeah, so public company boards are generally under an obligation to conduct a self evaluation, every year of the board and the committees. The New York Stock Exchange has it as a listing requirement. And what we were interested to understand is, what do they actually do, because there’s a vast spectrum of practice from kind of very little, all the way through to quite sophisticated. So we took a look at particularly the S&P 500, we thought would be interesting, because you would expect to see more of the leading practices there. As you know, with public companies in the US, as you move down the long tail of small cap, companies practice gets a little grayer in terms of best practice or minimum practice. So we took a look at the S&P 500. And we looked at their disclosures. So in other words, what did they tell their investors they were doing to evaluate the board. Now, of course, not everybody discloses a lot of the detail. There ended up being about 440 companies that disclosed in enough detail for us to be able to look and analyze what they were really doing. And so we we wanted to sort of dig into that. And I guess the headlines, David, that we were quite pleased with three things we saw in now. And we were disappointed with one. So the three things we were pleased by, one is that 60% now are reviewing not just the board and the committees, but also individual directors, which I think is important. We’ll come back and talk about that, I’m sure. Secondly, more than half of them now are using interviews as a sort of methodology for how they’re conducting their self evaluation. Why is that important? Well, if you simply rely on a survey, which a lot of companies do, our belief is you’re not really going to get root causes, you’re probably not even going to get very candid replies, because people are concerned about putting things in writing and creating a record. And so interviews are typically much, much better because you can ask follow up questions, which you can’t when it’s a survey. And then the third thing that pleased us and you’d say, well, he would say that wouldn’t you is about a third of them were using an external consultant of some form to actually conduct the evaluation either annually or periodically. And we’re going to look into that in more detail in future years just to try and understand what’s the frequency that they’re doing this? The norm that sort of got established coming out of the UK and French corporate governance codes was every two to three years, which is really every three years as it’s emerged, and so we’re keeping an eye on that thing. Now, what was the disappointment to us? With all of this activity going on in terms of the board evaluation? Only, well, less than 25% actually disclosed any of the changes they made as a result of the evaluation. And yet we know that the large institutional investors, the asset managers would love to know more about what happens in the evaluation because they see it as how serious is the board about continuous improvement? And if all they read is that you did some interviews, and you looked at boards, committees and individuals, and every couple of years, you use a third party? Well, it tells them, okay, you’re using some useful tools and techniques. But I have no sense of whether that produced any lasting change. And what did you change? Did you change your agenda? Did you injure committee? You know, did you change any other people? You know, tell me, tell me what came out of that.

David Drapkin (Boardroom Alpha)
So you said that in one of your write ups that there’s a missed opportunity there for companies to you know, share that color? Do you think this is just a continued theme of, you know, we’re going to disclose as little as we need to until we get investor pressure behind it? Or, you know, what, what, what are they hiding?

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
Well, a lot of companies have to be dragged kicking and screaming to disclosure table, don’t they? Usually, with their lawyers holding them one way or the other? So, yeah, unless the SEC tells them to do it, unless the investors say they want it. It seems that it’s it’s hard to get more disclosure. But I think that is a missed opportunity. Because here’s an opportunity to establish a narrative about how seriously your board takes the work of the Board. Having the right people there, spending time on the right topics, making sure that it’s the they’ve got the right committees looking at the right things. And you could explain that and how you’ve used the self evaluation to improve what you’re doing year on year. And I would think that investors would be encouraged by that kind of information. In other jurisdictions, this happens and it’s pretty typical like I mentioned the UK and France earlier, you can go into most annual reports of companies from the UK or France and you can read what happened in their valuation the same in the Nordics. So in Europe they’ve managed to survive this okay. And I I think the US companies would be fine.

David Drapkin (Boardroom Alpha)
Yeah. And it seems to be you know, in light of some recent current events, you know, board quality oversight governance for all you know, topics that are top of mind for for investors and all stakeholders alike. So you think that you know, more concrete takeaways from from those evaluations would be of use to investors. And so you talk about your changes that they can make, you know, when we look at overall, you know, board compositions, you know, what are some challenges that that current boards are facing today, whether that’s from, you know, a DEI perspective or, you know, if you’re thinking about the next board member who’s next, what are what are some challenges that our boards are facing?

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
Well, we can we can look at the push towards diversity and we can look at specific skill set that have become increasingly the focus of what of what boards are looking for. But actually, I think the big challenge is there’s too little turnover in boards, we’re getting the retirement age where they have them going up to 75. Now being the most popular number, you know, 10 years ago, it was 70. And I’m sure it was probably lower than that. So, you know, we’re not retirement ages are being pushed up to keep people on the board longer. Only 6% of public companies have a term limit, although I suspect that may become more important as, as we go forward here. But that’s just my personal opinion. And, they’re not doing for the most part, many of them are not doing individual director assessments. So only 60% of the S&P 500 would translate to I would think, a lot less than half and a way less when you head down into the Russell 3000. So they’re not creating turnover, they’re not assessing who’s on the board and deciding if their skill sets are still current and useful, given changes in the strategy. They’re not thinking, you know, I often use this baseball analogy that in baseball, you have value of replacement player. The same thing could be applied to board seats, which is a, you may have a great person on the board, I was gonna say, guy, it is actually usually a guy. But you may have a great guy on the board, who’s been there, and everybody loves them. But you know, they haven’t been a sitting executive and 15 years or more. And you’ve got to think about what’s the value of that seat? Yes, of course, institutional memory is important. But maybe there’s someone else on the board who has that as well. And what is the value if you were to bring in a replacement director, who might, for instance, give you digital transformation experience, which you absolutely need in this day and age, or would bring you important demographic diversity, or brings an international perspective to the board and sort of a current international perspective. So to me, that’s the real question that I think a lot of boards shy away from. And, you know, when we asked boards about their board culture, the first word that comes out of every directors mouth is “collegial”, “our board works very collegial.” But, I think collegiality is often used as it’s almost like the trump card that you play that stops conversations, difficult conversations, whether someone should stay on the board from happening.

David Drapkin (Boardroom Alpha)
Right, it almost seems like they’re setting complacency until, you know, there’s an agitating factor to ruffle the feathers a little bit, right. It’s the old, the CEO appoints, “yes men” to the board, rather than someone that, you know, will make challenging questions and, and foster debate?

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
Well, I think that’s got a lot better in the, you know, it’s not the CEO appointing anyone these days, it is the board appoint. But you know, when the board’s thinking about, you know, they might talk about chemistry, you know, is this person going to fit into our board culture? Quite often that means is this person going to agree with us and not rock the boat too much. And that may be the wrong way of thinking about this. Because, you know, when you have an oyster, you don’t get a pile unless you get some grit in there. And I suspect, there’s a little bit of that with boards that you do need some licensed descent going on in the boardroom, in order to have a creative conversation about taking the company forward. And by the way, you know, when we talk to management teams, you know, when we’re actually in there doing board evaluations, manager, the biggest complaint we get from management is, is that the board is not providing any stretch, or any valuable guidance to them. It’s not what you would, you know, tend to think, oh, you know, “the board tells us what to do.” No, it’s, “the board has no opinion”, “the board does not understand the business well enough to challenge us about whether our goals are really stretching or not”. And that, again, talk about missed opportunity, because, in effect, management’s running the company with very little input from the board in that scenario.

David Drapkin (Boardroom Alpha)
And that doesn’t help anyone. And so, you know, you mentioned this earlier, so we’re doing you know, overall board evaluations, but you mentioned that individual board member evaluations are becoming more important than ever, a, from a board effectiveness standpoint be, you know, also in light of the new Universal proxy rules whereby, you know, activists and investors alike can can vote on individual board members. So, you know, how should boards be thinking about that aspect of now, there’s going to be more scrutiny on individual members of a board.

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
Well, we’ve always advise boards to think about being their own activist, right. And whether we’ve said things like that we’ve been talking about strategy. So you know, look at your own strategy through the lens of an activist and how would they pick it apart? What’s the what’s the letter, they would send you your strategy? Now, you could apply the same thinking to the board composition, which is, what are they going to say about your directors, when they’re trying to persuade the institutional investors to support their candidates rather than yours. And wouldn’t it be better if you had conducted that analysis on your own board, before they’ve done it for you, and before they’ve captured the narrative? You know, most activists don’t launch campaigns, unless they’re fairly sure, they’re gonna get some institutional backing, because at the end of the day, they want to win. And so it would be useful to look at your board through the lens that a Blackrock or a Vanguard or a State Street or whoever is going to is going to look at your board. And I think individual director assessment can help with that, because not only would you look at skills and experiences, and whether they’re still relevant, given changes to your strategy, but you would also look at behavior. Now, that’s the bit that no one knows about. That’s not something investors know about. It’s not something the activists can really talk about, they can talk collectively, but not individually. But you know, whether someone’s sitting at the table and not saying anything, or whatever, they’re sitting at the table and talking too much and talking over everybody, and you can do something about that. And you can help your board be much more effective and understand who are the A players and who are the B players. And if they’re going to target our the players, maybe we should be a bit more proactive and thinking about a planned succession planning process and intentional process, over time over two, three years, where we might ask some of those B players to move on, in order that we can bring in some of the skills and experiences that we need.

David Drapkin (Boardroom Alpha)
So more proactivity, from boards to get ahead of some of those things.

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
I think so you know, typically the renomination process, it can be pretty wrote in a lot of companies, you know, yeah, we took a look at everybody. And yeah, they were all great. This is an opportunity to dig deeper, and to really understand what somebody is contributing, both in terms of skills and experience and in terms of their behavior and their role in part of it. You know, boards are a team. I mean, they’re a weird team, and they would never use word team to describe themselves. But they are and there are certain norms about how teams operate effectively, that do apply to a group of eight or 10 human beings sitting around the table trying to make some decisions.

David Drapkin (Boardroom Alpha)
We tend to view view it similarly. And so you mentioned it’s interesting. So, obviously, you can evaluate an individual board member on their behavior on your board, how important do you think that a board members other business interests are in evaluating in, their value? So say they sit on two or three other boards. We’re of the mindset at our company that you should be looking at, you know, the performance and the goings on of the other companies that, you know, given board member might might be sitting at, do you think companies are doing a good enough job paying attention to that aspect?

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
No, I don’t think they necessarily look at the broad swathes of things that that person has been involved in. I was recently involved with a company that did want to do that. They thought that they might be vulnerable to an activist at some point, and they wanted to take a look at, you know, let’s just take TSR as a proxy here for full shareholder return. And let’s understand among our board, who’s created and who’s destroyed shareholder value in their role if they were a CEO, in their time as CEO and in terms of the time they’d been on the boards of their different companies. And it’s an interesting picture. And, you know, frankly, it was pretty muddy to picture because some people, you know, had created value in one board but not in another. And sometimes, you know, there were issues to do with the industry that they were in. And obviously, looking at it relative to the in the index. But that’s quite rare that the boards go to that length, unless they’ve actually in the middle of a proxy fight or they no one is coming, because then they know they need to do that analysis. So I think it’s interesting. You know, I get worried when I look at boards, and the board directors are only on that board and not on any other board. Because where’s the cross pollination of ideas and best practices from one board to another? I think there’s value in having directors who’ve got some experience. Now, of course, we have a lot of first time board directors who are only on one board, who are current executives, and that’s fine, they’re bringing something else to the table with us what the current executive thinks about these issues. But for those who are retired and doing multiple boards, I think there’s value to be had, you know, as long as you don’t get over boarded.

David Drapkin (Boardroom Alpha)
Yeah, almost little chicken and egg there. You need some new fresh ideas, but not necessarily everyone has CEO experience. Or you always hear you want prior board experience, but you can’t have prior board experience until you get that first one in there.

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
And you know you used the word balanced. And I think that’s important as an idea. We were talking with a group of nominating and governance committee chairs recently about this issue. And they were quite enamored of this idea of average tenure as being a way of managing departures from the board, something that Microsoft came up with a few years ago. And I think that the average tenure there has to be 10 years, which means that you can have a balance of longer tenured institutional memory directors. But you’ve got to also have some new people. And and it’s an interesting regulation, way of sort of getting fresh blood on the board without necessarily losing some quite valuable long tenured experience as well. That that may be something that more boards should take a look at, because I think that balance is valuable.

David Drapkin (Boardroom Alpha)
Do you expect to see an uptick in activist situations given the universal proxy changes?

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
Well, I listened to Bruce Goldfarb on your podcast recently. And I think that this is basically making it more convenient for institutional investors to pick and choose candidates when there is a contest. And you could argue that that’s broadly neutral. It might save the activists some money, but the real winner here is the institutional investor, who now gets to more easily decide, well, I like these people on the management or companies slate and these people on the activist slate, and not have the inconveniences that were there before. I think, you know, I was trying to think through scenarios where someone might use this. I was thinking, Well, if you’re one of the I think it’s 184 companies left in the Russell 3000. With no women directors. You know, might an activist cleverly put up a slate of a couple of women, candidates, well qualified women candidates, knowing that all the large institutions have very strong policies, about gender diversity on the board. And in a scenario like that, maybe you’re much more likely to win because those companies have all been under notice for quite some time that they need to do something about that board and they’ve held out for a reason. So I think that would be one scenario where I think this could be valuable. But I think it’s really very early to say, and you look at something like proxy access that came around a few years ago, and everyone was concerned about what would that would mean, and how many times has that actually been used? I think it probably count them on the finger one hand, that, so it’d be interesting to see what the impact is with this.

David Drapkin (Boardroom Alpha)
Yeah, Bruce, was an amazing conversation too. The last question I have for you are, do you think boards are doing a good enough job in, you know, benchmarking themselves with some of their peers? And, you know, what, what should they be doing better? And, you know, what are some of the shortfalls?

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
Right, and and we’re really talking here from a governance perspective, because I’m sure, across the business, there’s all kinds of benchmarking going on. For sure. Sales is known, but it’s interesting, the benchmarking often stops at the boardroom door. So, you know, what, what could they be doing? Well, you know, when we get involved with board evaluations, we will often benchmark, the composition of the board against peers or aspirational peers, or even best in class companies. In some cases, we might also look at board structure and process, you know, what kind of committees do your competitors have? How often the board and the committee’s meeting, there’s quite a lot of information in the public domain that you could be looking at. And then increasingly, these days, there’s a lot of interest in what how are they managing ESG and sustainability, from the board perspective? And could you go take a look at their disclosures about that, assuming they say something about it, which in itself is a useful thing to know. And so I think benchmarking can be very valuable, and look, good corporate secretaries, absolutely are doing this all the time. But, you know, I would say it’s still a kind of minority interest in the board world to use benchmarking, but I actually think it’s incredibly valuable. And I think boards can learn a lot. And even if you just take composition, we’ve been talking about that a lot today. Understanding the kinds of people who have joined your competitors boards, and the skills and experiences they’re bringing, actually tells you something about their strategy, it it maybe gives you ideas for what you should be thinking about for your own board. And sometimes they might even just tell you, you’re way ahead, you know, and actually your boards in a better state than than theirs is, you better believe that your investors are sort of looking at this information. And an activist would absolutely look at this information. So why not?

David Drapkin (Boardroom Alpha)
Hey, Anthony, really, really appreciate it. I guess to finish off, what what should we be looking out for as we as we come to the end of 2022 and into 2023? Maybe one or two themes, or trends to look out for going into next year?

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
Yeah, look, I think a couple of things. So first of all, obviously, everyone’s going to be watching the universal proxy situation, and whether that delivers anything differently than might have occurred without it. The thing I’m interested in with the Republicans capturing the house, and with clearly a lot of pressure in red states against ESG, even as a concept, the kinds of hearings we might see in Washington around the impact of ESG investing. And, you know, what does it even mean? And what is it doing to companies? And I think you’re gonna get this clash of ideas between those who were worried about what they would call “woke capitalism.” And those who are sitting there saying, well hang on a minute, what we’re really talking about is material risks and material opportunities for businesses that will keep them sustainable in the long term. And how that unfolds and what that might do to our use of the language, you know, maybe ESG becomes so tainted, that we can’t talk about it anymore and we have to talk about sustainability. I think boards need to be paying a lot of attention to this because they’ve got to tread a very narrow path here between irritating some of their stakeholders and downright dismaying their investors. And, you know, look, most sensible people would say that there’s really no choice here that ESG factors have to be taken into account. If that is how modern investing is done these days, that’s how every portfolio manager is being trained. You know, it’s, it’s what you will take into account in your CFA exam if you know, it’s basically everywhere. And it’s how business is done in 2022. You still have to take account of political stakeholders, their voters, their states, and think about how you’re going to bring those things together. So that’s something I would be watching in 2023.

David Drapkin (Boardroom Alpha)
We’re gonna have to have you back for a full talk on ESG next year. Really, really appreciate you taking the time, super interesting conversation, a lot of themes to follow and really appreciate the insights. So thanks again, Anthony. Really appreciate it.

Anthony Goodman (Senior Client Partner, ESG & Head of Board Effectiveness Practice at Korn Ferry)
Well, thank you very much for having me, David, and I’d love to come back

<a href="https://www.boardroomalpha.com/author/draps/" target="_self">David Drapkin</a>

David Drapkin

Spent his formative years at Goldman Sachs and now embraces the start-up life in NYC. A long suffering Oakland (Las Vegas) Raiders fan and graduate of the Wharton School at the University of Pennsylvania. Semi-professional go-kart racer waiting for his shot.

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