Wells Fargo’s brass knew things might get ugly at the company’s 2017 annual shareholders meeting.
It would be the first public appearance by the board of directors since Wells became embroiled in a nasty phony-accounts scandal, in which thousands of its employees opened millions of fake accounts in customers’ names to meet sales goals or avoid the wrath of managers. It was a cultural breakdown of epic proportions, one that had already forced out former Chairman and CEO John Stumpf and several key lieutenants.
Now it was the board’s turn to meet shareholders. A blue-ribbon group that included 10 sitting or retired chairmen or CEOs, a former cabinet member, an Air Force general, and a former banking regulator, it had seemingly dropped the ball by allowing the scandal to occur. It then botched up the response and oversaw an investigation that was criticized for its lack of accountability.
In an apparent effort to minimize turnout at the annual meeting, Wells Fargo chose a location 2,700 miles from the company’s San Francisco headquarters, at the posh Sawgrass Marriott Hotel in Ponte Vedra, Florida. But the thing about annual meetings is that even the most distant locale and best security can’t keep someone out if they own just one share of a company’s stock.
In other words, anyone with an axe to grind, 50 bucks and a brokerage account can get in and take a shot.
And take shots they did. The fireworks began 20 minutes in, when a housing activist named Bruce Marks interrupted the board’s presentation to demand that directors—who were seated quietly in the front row of the meeting room with their backs to shareholders—stand up one at a time and explain how the scandal had happened on their watches.
“Let’s hear from each one individually, so they can respond whether they were complicit or incompetent,” Marks shouted. When told he was of order, Marks implored the directors to “have the guts” to “stand up and say what you knew [and] when you knew it.” Eventually, he was put in hand restraints by security forces and escorted out.
Less than 30 seconds later, another activist took up the fight. “Why don’t you all turn around and apologize… to those employees that were fired and scapegoated?” he shouted at the directors, and then to the shareholders at large, “Why won’t they turn around? Why won’t they be held accountable?”
And then another: “One thing I learned growing up is that you have to be held accountable for your actions; be a man and own up to it. I’m not seeing that in the group in front of me. I’m not hearing that from the guys in the front row.”
Similar public confrontations have befallen the boards of Volkswagen after its emissions scandal, Facebook following the unveiling of its data privacy failings, and Equifax after its cybersecurity breach. Beating up on boards when they fail—or fail to achieve—has become commonplace.
Signing on for board duty in today’s environment is not for the faint of heart—and not only because you risk being publicly humiliated.
The board’s structure, expanding responsibilities, and emphasis on independence might be limiting its effectiveness as a governance body. Though still a highly coveted, prestigious, high-paying job, being a board member today also comes with enough headaches and risk that it is worth thinking twice about whether you actually want the position.
“A lot of people pursue being a director because they think it’s an attractive job,” says Deborah Hicks Midanek Bailey, founder and managing partner of Solon Group, a corporate turnaround firm, and author of The Governance Revolution: What Every Board Member Needs to Know, NOW! “Do they like the job once they get it? In many cases, the answer is no.”
None of that has made the position any less desired. “We get hundreds, sometimes thousands, of people every month letting us know they want to be on a board,” says Constantine Alexandrakis, part of the board and CEO advisory group at recruiter Russell Reynolds Associates.
It’s not hard to understand why so many people want in: There’s the implied respect, the intellectual rewards of guiding a company’s strategy, the learning opportunities and connections, the pride of service, the money. There are only 5,300 board seats among S&P 500 companies. If you’ve got one, you’re in pretty rarified air.
For first-timers, it’s often a harbinger of bigger, better things ahead—a feather in the career cap. For old-timers, it’s a way to transition into retirement while making a contribution; a chance to make some money while dispensing wisdom. For most directors, it pays: SpencerStuart, a big recruitment firm, pegs the average compensation for an independent director at about $295,000.
But for all that, being a director in today’s environment isn’t what a lot of people expect, and is more than some people can handle. “The pressures and time commitments have increased,” Alexandrakis says. “The whole public nature of the role—especially when things go wrong—has increased.”
Board members are charged with both boosting shareholder value and keeping the company out of trouble. Depending on the company and its situation, you can be under constant scrutiny from regulators eager to prevent replays of past problems and shareholders pushing for everything from new strategies to reporting on plastic pollution. You’re on call in ways that can require you to drop everything else—even your day job—if something goes wrong, be it a cyberattack, a social-media kerfuffle, a cultural breakdown, the emergence of an activist investor or any one of myriad other issues.
The workload and time commitments can be immense. Though boards have a multi-billion-dollar industry of consultants, lawyers and recruiters to do a lot of the dirty work, directors must oversee the company’s risk-management programs, which can be an overwhelming task. They can rely on outside experts, but must become conversant enough to ask good questions on big complicated areas like corporate culture, cyber, technology, global trade and social media to participate in oversight discussions. They spend time running through crisis-preparation drills, monitoring employee whistleblower lines for tips on misdeeds and responding when trouble occurs.
They spend a lot of time reading. And serving on committees.
Everyone has high expectations. Anne Simpson, director of corporate governance for the California Public Employees’ Retirement System, the nation’s largest pension fund, calls being a board member “a role of such economic, social and financial importance, that we struggle to even define the job.” So yeah, there’s no pressure.
And since board members are now often required to be independent of previous ties to the company or CEO, they come in with potentially significant knowledge gaps and often face difficulty getting the information needed to do the job well.
It’s a part-time job with full-time responsibilities. Surveys indicate the average S&P 500 company board member spends about 20 hours per-month on the job, but if the company has any complexity to it at all, the figure can be much higher—especially at the beginning of your term when the learning curve is steepest.
Robert Mittelstaedt, lead director at Laboratory Corp. of America, a Fortune 500 medical-testing firm, says his board’s regular meetings, along with committee work, run 18 hours over two days. He’s on the phone most days dealing with company-related issues, and spends hours each week reading up on issues of importance to the company.
When a major strategic challenge, compliance issue or other crisis emerges, the time commitment and accountability can quickly mushroom. “If there’s a cyberattack and the company’s data gets compromised because a software patch wasn’t installed, directors are held responsible for it,” says Doug Chia, executive director of the Governance Center for The Conference Board.
Oh, and if your company is of any size and/or active, you will likely get sued, usually by shareholders, and need good insurance. In just the first two months of this year, 69 companies and/or their boards were sued, according to a class-action clearinghouse maintained by the Stanford Law School. M&A deals often spark lawsuits, as do social concerns. In January, the board of Google’s parent, Alphabet, was sued for allegedly shielding executives from sexual harassment accusations.
Franklin Gevurtz, a University of Pacific law professor who studies boards, says only half-jokingly that the main purpose of boards is to “have someone to sue.” Good governance relies, in part, on the courts for enforcement. Directors are protected by the “business-judgment rule,” which says that if they are reasonably informed, act in good faith and do what they believe to be in the company’s best interests of the company they won’t be found liable.
That, combined with D&O insurance, means such lawsuits “rarely result in monetary liability,” says David Katz, a partner at Wachtell, Lipton, Rosen & Katz, a New York law firm. “But people rightly worry about scandals sullying their reputations.”
The challenges and risks of board service can be balanced by rewards. Mittelstaedt talks with pride about the board’s role in fending off a 2018 cyberattack that forced LabCorp to “shut the whole company down” for two days. “We didn’t get compromised because the board had the foresight to invest in good cybersecurity processes,” he says.
If you’re up for the challenge and become a candidate for a board position, it’s smart to learn more about how the group works and the time commitments. Here are some questions to ask.
- Why do you want me? Mittelstaedt recalls a board position he took early in his career. He didn’t ask the right questions and learned afterwards that the company had an ethics problem. “I figured out pretty quickly that what they really wanted was to be able to say they had someone from the Wharton School on the board,” he says. Mittelstaedt resigned.
- Is this the kind of organization I want to be affiliated with? Do your homework. Are there reputational risks looming that aren’t readily apparent? If any directors have left under unusual circumstances, ask them why.
- What’s the status of the CEO? A big part of the board’s job is hiring and firing the CEO. If it appears that the job might need filling in the near future, a search could add a lot of time and responsibility to the job.
- Is the company acquisitive? Same as with the CEO. Boards approve mergers and acquisitions. If that’s part of the company’s growth strategy, it’ll require more time.
- Does the board’s composition match the strategy? If it’s an acquisitive company, is there a director with a deal background to provide an independent assessment? If technology is important to strategy, is there an expert to ensure the plan is on track? You want to work with people who know what they’re doing.
- What does the D&O insurance coverage look like? Boards get sued frequently and you want to be covered.
- Is this a group of people that you’d want to be in a deposition with?
For folks who want to be directors, this is a relatively good time. A surging “board refreshment” movement, with its emphasis on diversity, skills, and youth, theoretically opens the door to entire classes of folks who never before had the chance to sit on boards. Actual progress in attaining some of those goals is elusive—in part because people won’t leave the job, but turnover is slowly increasing. In 2018, 428 new directors joined S&P 500 boards, up 26% from five years earlier, according to SpencerStuart.
Here are some questions to ask yourself before deciding you want to be on a board.
- Why do you want to do it? Do you have passion for what the company does or feel it could provide a valuable learning experience? If you’re going to spend a lot of time on this position, you should like and get something from it beyond money.
- Is the timing right? If you’ve just gotten a big promotion—or are actively seeking one—you might want to wait, because being a director will take your time and attention. If you’re younger and are being considered for a board position at a smaller firm, could you land a better, bigger one in a few years? You’ll be expected to stick around for about a decade, and many companies limit employees to one board job.
- Do your skills match the board’s needs? You want your time spent effectively.
- Do you have the time and are you willing to make a commitment to the company? When trouble flares, the board goes into action. “You don’t get to say, ‘Oh, there’s an activist? I don’t want to do this anymore.’ You’re in it for better or worse,” says Julie Daum, leader of SpencerStuart’s North American board practice.
- Do you have the backbone to stand up to the CEO? Boards have too many yes-people who go along with whatever management says. Be honest with yourself. Just because you have a technical skill that makes you attractive doesn’t mean you’re well-rounded enough for the job.
Despite it all, people keep calling recruiters, hoping to land a boardroom gig. Tenures are rising because sitting directors don’t want to let go. Even the ones who sit on troubled boards are reluctant to leave.
At Wells Fargo’s annual meeting, all of the directors who were subject to shareholder catcalls ran for re-election, and they all technically won. But none of the 12 who had been there when the scandal was brewing garnered more than 80% of the vote—a harsh condemnation in the world of shareholder votes. A year later, all but three of those board members were gone, including a group that was forced out by government regulators.
You might conclude that being a director of a large public company is an attractive gig, but if you aren’t willing to put in the necessary time and diligence, and to pipe up when something looks off, things could get ugly. Decide with care.