Julie DaumTranscribed from a Skype conversation with Julie Daum
and AESC President Peter Felix

Peter Felix: Hi Julie, on behalf of the AESC and BlueSteps, thank you for taking the time to speak with us today. First of all, can you share with us some of the work you do at Spencer Stuart?

Julie Daum: I have been at Spencer Stuart for almost 19 years, and I spend 100 percent of my time working with corporate boards, mostly recruiting new directors but also working with boards as they think about succession planning, their own succession planning, CEO succession planning, best practices and governance.

Peter Felix: I know that before you joined Spencer Stuart, you were already working in the arena of female executives, female representation at Catalyst. Can you explain a little about that, because I think there is a link there into some of the issues we are facing today in terms of female representation on boards.

Julie Daum: Well, this was 20 some years ago, and we were trying to bring a spotlight to the issue of women in the boardroom.  We figured if we could increase the percentage of women in the boardroom, it would filter down to the rest of the organization, and we would increase the number of women in management. So we started doing the Catalyst Census which counts how many women are on boards each year. We worked with companies to help them think about their own board and helped them identify women. 

Peter Felix: Yes, absolutely. Perhaps let's take a broader view at the moment before we get into the depths of that issue. I mean, since the Enron crisis, more than ten years ago now, and the passage of the Sarbanes Oxley legislation here in the States, there has been a tremendous focus on the performance of corporate boards, and what has happened here in the States seems to have spread around the world. Can you discuss some of the major challenges of the boards, particularly of U.S. public companies, face today.

"We figured if we could increase the percentage of women in the boardroom, it would filter down to the rest of the organization, and we would increase the number of women in management."
Julie Daum: I can, although I would say I'm not sure that what we experience here goes around the world. For example, the UK has a very different governance model, and I think they would suggest their model might be the model that is setting the trends. But I do think that no matter where a board is located one of the issues and challenges they face is that there is not a lot of time, given how often a board meets, for the board to really understand the business and get into the strategic issues. Since Enron— U.S. boards would say they spend a lot more time thinking about, and worrying about, compliance and following the rules, and less time than they used to on the things that are really more important—thinking about the strategy of the company and succession.

I think boards realize this and are trying hard to work on their agenda to ensure that they spend time on the issues that matter.  I think you'll see board focus on succession and making sure they have the right person at the top. We were going down a slope where boards felt they were spending most of their time on committee issues, if you will, rather than business issues.

Peter Felix: It does strike one as still being very much a work in progress. I believe one of the impacts of the legislation and the constraints on the number of boards that people sit on is that there really has become almost a scarcity of really good, qualified people who are willing to sit on public company boards. What is your feeling about that?

Julie Daum: I think that's true, but it somewhat depends on how you define a qualified director. So, in the past, companies always thought the ideal director was an active CEO of a company larger than theirs.  Where you used to see CEOs serving on three outside boards, now half of the CEOs of the S&P 500 don't serve on any outside boards. So that candidate pool has indeed dried up. I think people on the other side of the argument would say, well how good of a director could a CEO be if he was running a company and serving on three outside boards. So, part of the issue is how you define  what makes a good director.  The traditional candidate pool has indeed shrunk, and boards need to think about how they replace that pool of candidates.

Obviously, with Sarbanes Oxley, there was a sudden demand for financial experts, so many boards started looking for people who had been or are CFOs and could fill that financial expert space. This filled in some of the decrease in the number of CEOs on boards. After filling the financial requirement, boards have to think about board composition in a very different way.  They must think about, in this particular board, this company, at this time in our development, looking at the rest of the board members, who and what kind of board member do we need going forward? It can't just be a kneejerk reaction—I want an active CEO of a company larger than mine. Boards have become more thoughtful.

Peter Felix: Yes. More proactive. Trying to get ahead of the issues rather than reacting to them. Obviously, that's been a bit of a benefit to our profession in terms of advisory work and hand-holding boards as they think about these issues.

Julie Daum: It has, and also because, if all of a sudden you're looking for somebody who's got a strong logistics background, there's a really good chance that no one on the board knows that person. In the past, it was a network of people, so every board member looked to their own network to recruit another director. Now, if you're looking for the best person who understands Asia, supply chains, or whatever it might be, you probably need help doing that because the right people are unknown to the board.

Peter Felix: I think a classic case of this is, isn't it—recently Starbucks, I think, recruited a very young board director who was an expert in social media. I think I'm correct in that example?

Julie Daum: You are. 29 years old, yes.

Peter Felix: Let's talk a bit more about the composition of boards. We touched on it at the beginning, and it is very much a topic of the moment. Diversity has been on the corporate board agenda for many years, and yet, the needle doesn't seem to have moved that much. One example of diversity of course is the issue of women on boards. There is still a small percentage, certainly in the United States—I think it's currently around 16 percent of Fortune 500 public companies. It varies around the world. Why is this the case? What changes are afoot to move the needle a bit?

Julie Daum: Well, in the U.S.—do you want me to just talk about the U.S.?

Peter Felix: Well, I think first U.S., and perhaps then we'll extend it beyond.

Julie Daum: In the U.S., the number is about 16 percent and that has been relatively stagnant.   One of the reasons for this is, there is a real lack of turnover on U.S. boards. Boards have decided to up their retirement age from 70 to 72, or from 72 to 75. As a result, there just are not that many open seats.

This year in the S&P 500, there were fewer new directors than there had been in the past ten years. There are just fewer new people coming into the room and that would include women. So that's a real issue—the fact that U.S. boards don't have more turnover. I think there is also a bit of diversity fatigue.  And boards think about diversity in a broader context to include women, ethnic minorities, but could also include recruiting somebody from overseas. So, the U.S., is adopting broader views on diversity than in many other countries.

There is nothing afoot right now in the U.S. to change that 16 percent. So, I think it's kind of a board-by-board situation. Obviously in Europe and in Australia, and other places, each country is coming at this in their own way. Some countries have put in place quotas. Some have put in place guidelines to try to increase the number of women in the boardroom, and it is working in the countries that have quotas. There are many countries that already have a larger percentage of women in the boardroom than we have, even though the U.S. has been looking and working on this issue for 20 years.

Other countries are thinking about the issue and trying to address it. If they're legislating it, they are trying other methods, for example, in a couple of countries—the chairmen of major companies are coming together and introducing senior women from their own organizations to other chairman to try and create a pipeline and a pool of candidates who may be slightly below the radar screen. Each country is coming at it in its own way. But, I would say the U.S. is not addressing the issue.

Peter Felix: That's interesting. As you suggest, in Europe, government has become involved in this. Obviously, it's partly a demand issue, partly a supply issue. Do you feel that in the United States, that taking the U.S. as one focus, that enough women want to be on boards, that there is enough pre-education and training and development, so that women aspire to be on boards? Or, do you think it's part of the career fatigue that they don't particularly want to go that extra step? What are your feelings about that? One is now getting more into motivation of women, female executives, to actually aspire to become board members.

Julie Daum: I think there's a huge interest for women to get on boards. I think most female executives aspire to that seat, so I don't think it's a function of interest. I think one issue, as I mentioned earlier, is that boards have a definition of an ideal board member as a sitting CEO.  So the women who want to serve on a board don’t meet those qualifications and I think that's a big part of it. I don't think there is a lack of interest, I think that, unfortunately, there are not as many women in senior management as we would like there to be, and that affects the pool of candidates.

We are looking for women (and men) who have very senior operating jobs. These women are interested in serving on only one.  They’re still working.  You start to put those criteria together, and you start to limit the pool.

Peter Felix: So, in fact, you need more people coming through the pipeline who are going to get to the senior executive level, and then by definition, be interested in that next step.

Julie Daum: Right.

Peter Felix: This issue really does tie into the whole issue of the talent shortage that you and I know about and, I think, is very evident to senior executives around the world. That there is a shortage of good people. As the economies rebound, hopefully one day, we're going to probably see a resumption of a real war for talent just because of demographics and the demand for the emerging markets, and so on. So, the whole issue about the pool of talent, the female pool of talent, is actually quite important.

How do you expand it and how do you make it available so that this great general shortage is less severe? Do you see trends that are encouraging? Do you see the business schools helping in this respect? What do you see is the throughput of women into senior executive ranks?

Julie Daum: That's the million dollar question. You know, the business schools are graduating a good percentage of women, so it isn't the women going into the pipeline, so the issues are elsewhere. Women are not rising through the organization, and that does really impact the numbers on boards.  But it is a bigger issue right now, than in the boardroom.  Women are not making it to the top in the percentage they should, given how long we've been in the workforce. Women are dropping out for many reasons. This is frustrating because there is not one thing that you can do to fix the system. I don't think it's the education, because as we know, more women have college degrees and many women have attended business school.  The problems lie in the middle of companies and professional services firms.

Peter Felix: Yes. Interesting. Obviously, the search business is right there in the middle of all of this. What do you think the search profession can do to increase the numbers and start closing the gap and help to identify female executives who can be encouraged to become board members? What initiatives do you think we can take?

Julie Daum: Well, I think it's important on any search you think about including women and minorities on your list who are not.  There is a tendency at the board level for people to ask if this is a search for “a woman” and if not proscribed they don’t include women in the mix.  Many times, if the client doesn't mention diversity, or female, we don't provide it, and that's just wrong.

If somebody asks me for a financial expert, I don't even think about it, a third of the people on the list will be women.  I won't have had to make a special effort because it's just the way that we think about it.  We don't have to be told. But I think a lot of times, boards need to be told to think about it and I think search people need to be told to think about it.

Peter Felix: So, there is a kind of consulting and a kind of advisory role there for the search firms who at least take on boards, you know, the overall objective of trying to raise the profile of this particular issue and educate boards in the process.

Julie Daum: We do need to educate our clients on when in the process and there are people in the candidate pool who actually meet the criteria.

Peter Felix: I think that's right. Julie, finally, what can female candidates who are interested in serving on a corporate board do to increase their visibility? As you know, we ourselves run a candidate database called BlueSteps, but generally speaking, what do you advise?

Julie Daum: First, they need to look in the mirror and make sure that they are ready and qualified to serve on a board, and understand the criteria for board membership. Then, it is still a networking activity. You need to be known either to a search person or to someone on the board.  You could also have an excellent reputation in your field so that you are known.  Many women have a tendency to keep their head down and do a really good job at work, and then go home to their kids, but they don't get out of their office. To get noticed by a board, it has to be by people outside of your company – someone in your industry community, or someone you serve with on a non-profit board.  Women need to think about this earlier in their career, and think about building a reputation, not only within their company, but externally as well.

Peter Felix: Yes, indeed. Some things we're going to try to do is encourage female executives to join BlueSteps and identify themselves, and not just as females, which of course in an option as it is always in any database, so to identify that they are interested in becoming board members, or are already board members. So, we're going to try to do our bit towards that. I mean, do you think that—I've heard it said that if you want to get into the business of being a board member, it is a first appointment that is the most difficult, but after that, you become more visible, and the second and third appointments, and indeed, you are able to take on more appointments, so it becomes easier. Is that a fair comment?

Julie Daum: I think it is. Now, boards are more accustomed to having directors who have never served on a board, but you can't have too many first time directors in the room because it does take a while to learn how to be a good board member. So, boards will look at people who have never served on a board, but it's not their first choice. The first time director has to really bring something to the table, so like the woman at Starbucks, she has never served on another board, but she had very specific knowledge that was relevant to that company. But chances are, when they go to bring another person on, they're not going to want to bring someone else on who hasn't been on a board before. So, generally boards are really looking for people who have governance experience.

Peter Felix: Yes, absolutely.

Julie Daum: So, it is that old catch 22, how do you get a job when the requirement is that you have to have had a job before kind-of-thing.  Once you've served on a board, then people can do references and really understand what kind of director you'll be. In the U.S., that's particularly important because the way the rules are written now, if you join a board at the age of 40-something, you could stay until you're 72 or 75. Thus, if a board made a mistake and brought the wrong person on, they could live with that mistake for a long time. They're very cautious.

Peter Felix: One can certainly understand the need to be cautious. Julie, this is very helpful. Thank you very much indeed. I'm sure we could carry on discussing this for a long time, but I think you've given a great overview and thank you very much for your time.

Julie Daum: Well, thank you very much.

Peter Felix: Talk to you soon.


About Julie Daum

Julie Daum co-leads the North American Board & CEO Practice and serves on the board of directors of Spencer Stuart. She consults with corporate boards, working with companies of all sizes from the Fortune 10 to pre-IPO companies and has worked on more than 850 director assignments. Her recent work includes recruiting outside directors for Coach, Delta Air Lines, General Motors, Hyatt Corporation and State Street Corporation.

A recognized expert on governance topics, Julie helped found and develop the Wharton School’s Corporate Governance: Fresh Insights and Best Practices for Directors program and is regularly quoted in The New York Times, Financial Times, BusinessWeek, Time Magazine and The Wall Street Journal. She is also the co-author of the recent business book You Need a Leader—Now What? How to Choose the Best Person for Your Organization.

About Spencer Stuart

Founded in 1956 and privately owned, Spencer Stuart is one of the world's leading executive search consulting firms. Their clients range across industries, from the world's largest companies to medium-sized businesses and entrepreneurial start-ups. The search firm operates out of 53 offices in 29 countries. Last year, the firm conducted more than 4,000 assignments around the world.

The Spencer Stuart team of more than 300 consultants possesses a unique blend of professional search experience and industry expertise. Consultants are organized in practices and work in teams, often across international boundaries that maximize sector specialization and knowledge-sharing. These client service teams are supported by first-rate associates and researchers, and backed by state-of-the-art technology.

Spencer Stuart is a member of the AESC. www.spencerstuart.com

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