The traditional route to the board of directors, working up the corporate ladder to the C-suite, has always been viewed as the primary pathway to a directorship. Non-executive directors (NEDs), primarily comprised of retired CEOs and CFOs, were present but essentially formed a 'good governance' box-ticking exercise. The stereotypical NED could fly in, share a few nuggets of business wisdom and tap out again until the next board meeting.
This culture and style of corporate governance had two significant drawbacks that manifested in two major issues after decades of existence. The first is that of 'group think' - having an entire board from the same or similar background leads to all members overlooking the same problems. On a minor level, this can provide an ineffective board. At a significant level - the 2008 financial crisis.
The second similar issue concerned non-executive directors' inability or lack of motivation to perform their intended role adequately. Traditionally seen in a purely advisory category, NEDs are designed to play the role of 'critical friend' - to mentor the executive team whilst challenging their strategic decisions simultaneously.
Their independent status, separate from the company's day-to-day running, comes invaluable in developing a holistic view and a long-term business strategy. The increased importance of the non-executive director has created an alternative route to the board room.
In 1992, the Cadbury Report was released following unforeseen bankruptcies, including the wallpaper group Coloroll and textile company Polly Peck International. The resulting lack of investor confidence in the accountability and integrity of listed companies prompted the first central review of corporate governance. The Cadbury Report's recommendations revolved around an increased share of independent directors in all board areas, especially the Audit Committee. The Higgs Review in 2003 backed up this, which further emphasised the importance of the non-executive director's role within the board.
Following this, the Walker Report after the 2008 financial crisis highlighted the general need for change in the relationships between board members. The report also emphasised that NEDs had failed to "challenge the executive on substantive issues". The FRC's simultaneous review of the Combined Code on Corporate Governance encouraged the view that NEDs should challenge executive proposals on significant risk or business strategy issues. Alongside this, the recession made investors look closely at every area of their business, which included the NEDs contribution and whether they demonstrated a tangible ROI.
More recent updates to the Code include the suggestion that half the board comprises non-executive directors. However, it remains vital for NEDs to bring a strong 'independence of mind' to challenge more vocal executives and represent the best interests of the shareholders. NEDs are subject to the same codified duties under the Companies Act 2006 and serve the board with their sector expertise, experience and unique perspective.
This critical scrutiny of corporate governance and business leadership has led to the increased importance of a diverse room of board members. Research and trends show that greater diversity in the board leads to tremendous financial success. Diversity isn't just about gender and ethnicity, either. Varying ages, experience levels and professional backgrounds contribute to a well-functioning board of directors. As a result, there are more opportunities for professionals from non-traditional backgrounds to make the jump to a high profile board role than ever before.
A study of Fortune 250 companies showed that "a wide range of perspectives, not merely token representation, is critical to effective corporate governance." For example, women need to hold at least three board seats to create a "critical mass," leading to better financial performance, according to Catalyst. In addition, the speed of change, particularly in digitisation, requires new specialisms and perspectives. This new requirement has increased the chances for business leaders who haven't served in the C-suite to move into a non-executive directorship.
As disruptive forces threaten established business models, investors increasingly consider board composition a top priority. Essential knowledge in fields such as A.I. and cybersecurity are typically found in a younger generation than those that usually sit on a board of directors. This has led to the rise of the so-called 'next-gen director' - business leaders in their 30s and 40s that bring their much-needed expertise to the top level of management.
Broadening a board to cross the generations benefits both the company and the young director. First, the company gains the necessary expertise and a new perspective on how decisions may affect employees and customers. For next-generation directors, this is an opportunity to gain new leadership skills, learn from more experienced colleagues and learn about new ways of doing business.
This is the exciting new trajectory open to younger professionals to board directorship.
Trailblazing businesswoman Indra Nooyi was CEO of PepsiCo for 12 years, growing the company's revenue by 80 percent over her tenure. Now retired, she remains a member of the board at Amazon, on the supervisory board of Philips and a non-executive director on the International Cricket Council.
Earning an MBA in her native India, Indra received a scholarship to attend Yale University, where she earned a master's degree in public and private management. Upon graduating, she joined Boston Consulting Group as a strategy consultant before spending time at Motorola then Asea Brown Boveri, leading corporate strategy departments.
"I've always had extraordinary mentors who stepped up to coach me, develop me, support me. And in turn, I gave them my loyalty." - Indra Nooyi.
Indra joined PepsiCo in 1994 as Senior Vice President, Strategy Planning and worked through to President and CFO, joining the board of directors in 2001. Five years later, Indra became PepsiCo's fifth chief executive officer and the first woman to hold the position.
"I wasn't upset when I was excluded from the customs of male power; I was just happy to be included at all." - Indra Nooyi.
She spent 12 years as CEO and chairman of the board at PepsiCo before retiring in 2009 and has been lauded for her success. Indra continues to be a non-executive director for Amazon Inc. and the International Cricket Council and is vocal about the need for policy to support women into senior leadership.
A next-gen' board director, Caroline achieved board directorship for the first time at 32. Eight years later, she is now on the boards of The Coca-Cola Company and Morningstar, alongside being CEO of her own company, Computer Software.
As a Silicon Valley native, Caroline's tech and digital marketing career path started with a B.S. in Computer Science, followed by an M.S. Management Science & Engineering, both from Stanford University. Her first role in the working world was for IBM, where she served as a Senior Consultant. From there, Caroline spent six years at Yahoo, gaining several promotions along the way to become Senior Director of Product Management, Search and E-Commerce.
Moving to Hewlett-Packard Enterprise as Vice-President and General Manager of Software. she began working with an executive coach. The coach advised her that a career was not just about day-to-day job execution but also about developing a personal brand and asked whether she had considered board work.
"I thought you had to be retired, or far later in your career for something like [board work]." - Caroline Tsay
Her executive coach recommended that she start speaking at conferences and events, which paid off. An executive from Rosetta Stone happened to be in the audience of the first panel she spoke at and reached out afterwards. Rosetta Stone proved to be Caroline's first board.
"Once you're in the public companies board director network, it's quite small, so it's easier to find opportunities, or get reached out to for further opportunities." - Caroline Tsay
From Rosetta Stone, Caroline later joined the boards of Morningstar and The Coca-Cola Company. The latter has notably recognised the need to diversify its board and bring a digital native to its senior management team.
"She brings a far different background to the board than any other current member, from her work in technology to her perspective as the youngest member." -The Coca-Cola Company Press Release
Caroline brought digital experience and technological expertise to the board of directors. The Coca-Cola Company noted that she was the youngest director by 16 years, and she has been vocal about the need to diversify boards, including age.
When comparing these two routes to the boardroom, it is easy to see the differences between Indra's traditional, executive route to a directorship vs Caroline's more recent non-executive path. This exemplifies the changing attitudes and a renewed focus on the necessity of having a range of viewpoints within the boardroom.
Indra Nooyi took her seat on the PepsiCo board as President and CFO. Having a financial background in corporate strategy and planning has been an asset to her rise to CEO. Corporate strategy had been the essence of her professional positions from as early as BCG, her first role after graduating from Yale University.
Comparatively, Caroline Tsay's path took a much quicker route to directorship, seen by companies as an asset for her digital specialism and fresh perspective. Caroline's rise to the board as non-executive director reflects the increasing importance of NEDs and the need to diversify the board. Indra Nooyi's highlighted quote above reflects the lack of diversity in the executive world of the early noughties and how much of a trailblazer she was.
With shareholders and research studies demanding more diversification from their boards than ever before, the role of the non-executive director has taken a dramatic turn. Moving from the domain of CEOs put out to pasture to the young 'next-generation' directors who are hungry for leadership experience.
This alternate trajectory to the board moves past the traditional executive route to the board and opens the door to senior professionals who have not yet gained C-suite status. It should also not be presumed that executive directorship is the intended aim for any corporate board member today, with a new host of senior management making non-executive directorship their career path.