Governing: Boardroom Makeover
Like many company owners, Richard Domaleski set up a board of directors only to realize he had done it all wrong.
Published March 2003
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Playmakers. people who lead and live the team. That's what Richard Domaleski wanted from his board. Instead, he had caretakers. People along for the ride. And who you have helping guide your business can be the difference, Domaleski soon learned, between a faltering company or one headed in the right direction.
When the founder of World Energy Solutions Inc. assembled his first board in 2000, it consisted of nine investors and friends. The group met quarterly, generally affirming Domaleski's every action. But the Worcester, Mass., company, which auctions electricity and gas credits, lacked customers and financing. It needed more from its board to survive. After eight frustrating months, Domaleski says, "I walked into a meeting and told them, bottom line, we haven't been effective." One director agreed to join the company as chief operations officer. The rest resigned. Recalls former board member Tom Sacco: "No one, that I really know about, opposed the idea. Rich hadn't taken a salary since the company started and things weren't looking too good. Change was needed."
Though he didn't know it then, in fomenting a boardroom shakeup more than a year before the Enron scandal, Domaleski was at the leading edge of a trend. In companies large and small, a rethinking in business governance is taking place. Not long ago, the stereotype of mahogany row as a club for Old Boys seeking frequent flier mileage approximated the reality of a director's portfolio. Now, business owners and investors demand more, and the consequences of this are profound. For one thing, people are opting not to join boards. And for another, companies like World Energy are starting over.
The environment has created, in the words of Ralph D. Ward, publisher of the online newsletter Boardroom Insider, a "talent gap" between the demand for directors and the supply of willing, qualified prospects. "Higher governance workloads, limits on the number of boards on which a director can serve, and new liability dangers make it much harder to recruit top board talent," he says. And different kinds of skills are in demand today. The gold standard used to be sitting CEOs, but with financial expertise at a premium, CFOs are becoming a much hotter ticket.
"The new board rolled up its sleeves and achieved goals even we didn't think were possbile," says Richard Domaleski, who reduced his board's size from nine directors to five.
As they remake their boards, business owners no longer take sole responsibility for landing top-notch directors. Big companies are turning to professional recruiters, whose searches start at $60,000, while smaller firms are using committees of employees and others to vet candidates. Companies are also doing better background checks -- hardly surprising given the recent slew of criminal allegations at the director level. Specialists like International Business Research of Princeton, N.J., which has seen an uptick in business in the last year, handle board of director screenings for between $4,000 and $6,000 per person.
Another tactic, used by Domaleski when he revamped World Energy's board, is to try before you buy. CEOs are requiring probation periods before inviting candidates to become full-fledged directors. In Domaleski's case, "We invited the best people to see our business, get excited, and over time, they committed," he says.
