PART 2: THINK YOU’RE READY TO BUILD YOUR COMPANY’S BOARD?
In Philadelphia this past December, BioBreak and Drexel University brought together a number of thought leaders to discuss issues regarding corporate boards, prompting Life Science Leader to create a “Journey To The Boardroom” series of articles. In part 1, we provided information on how to go about seeking corporate board opportunities. In part 2, we dig into what company leadership should think about when building a corporate board. To be sure, one aspect all companies should be considering is how to make their boards more diverse. In fact, on January 10, 2017, the Massachusetts Biotechnology Council (MassBio) published an open letter of guiding principles for gender diversity, noting it should be a priority for the biopharmaceutical industry. Perhaps here is one of the reasons why: For though S&P 500 companies can currently boast 99 percent of its members having at least one woman serving on a board, the reality is that less than a quarter (20 percent) of these publicly traded company board positions are presently filled by women. Common sense indicates that we can certainly do better. Maybe this is why last year 13 of the world’s most well-known and influential business leaders got together to develop the Commonsense Principles of Corporate Governance, of which diversity is point number two. But beyond diversity (gender and otherwise), what else should leaders be thinking about when building their companies’ boards? For this we engage the following six executives in a directed Q&A: Richard Baron, former CFO and board member Zynerba Pharmaceuticals; Madeline Bell, RN, president and CEO of Children’s Hospital of Philadelphia (CHOP) and Comcast board member; Rich Daly, president, CEO, and chairman of the board for Neuralstem; Nance Dicciani, Ph.D., former president and CEO of Honeywell Specialty Materials and former member of the U.S. President’s Council of Advisors on Science and Technology (currently on the boards of Halliburton, LyondellBasell, Praxair, and AgroFresh); Kirk Gorman, former CFO Jefferson Health Systems and board member of several companies (e.g., BioTelemetry); and Barbara Yanni, former head of licensing at Merck and board member of Trevena, Symic Biomedical, and Vaccinex.
LIFE SCIENCE LEADER (LSL): What has been your experience with how boards are built?
RICHARD BARON: Boards are generally developed in one of three ways. A classic scenario typically involves a friend, perhaps a current or former investor, or maybe a former high-level employee of the company contacting someone they know and trust about a board position. Another case involves serial CEOs (i.e., an executive develops several companies) who keep going back to the successful team they worked with in the past. Although in such situations, you’ll often see a core group of board members from one company to the next, these CEOs (and their boards) recognize the need to periodically go outside the core to secure specific expertise (e.g., business development).
I will draw on my most recent experience to explain a third way a board can be developed. I was involved with a CEO who set up the board based on where he wanted to be from a financing perspective. His goal was to be a public company and to do so very quickly. As such, he developed a public-style board while the company was still private. The board did not involve any venture capitalists (as they tend to be on a board when private, but roll off when going public), but consisted of a diverse group of people with deep expertise in specific therapeutic classes on which the company was working. Having an executive (or a group helping to form a board) knowing what the end play will be can enable a much quicker IPO, which in this case, took less than a year. Building a public-style board when you are still private can be a wise strategy.
LSL: Explain how you revamped the Children’s Hospital of Philadelphia’s (CHOP) board.
MADELINE BELL: Like most hospitals or universities, we had a large board. In fact, when I became CEO we had 30 board members, which is small when compared to some other boards who consist of 45 to 60 members. The reason for large boards in the nonprofit world is that we are charities, and we are trying to raise money. But there is also a long-standing community commitment, which is often exemplified by having community members serve on the board. Some of CHOP’s board members didn’t have term limits and had been on the board for 50 years. Again, this is not unusual for a hospital or a university. But as an organization that generates around $2.6 billion in annual revenue and employs 14,000, we needed a board that could not only help us for where we are today but also where we want to grow in the future. The leadership team felt that an ideal situation would be to have a 12-person board, and so that became our goal. We started by determining what we wanted on the board (e.g., competencies, experience, background, diversity). Personally, I wanted a mix of board members who had been CEOs, as not only would they understand what it was like to walk in my shoes, but also they would also have an understanding of the difference between management and governance. We hired a consulting firm to help us develop board member profiles and to facilitate agreement on these between me and the board. Some of our board members used this time as an opportunity to retire and go to emeritus status so that we could keep them engaged. In addition, we went through an assessment process that not only gave board members the opportunity to assess each other, but also gave me the opportunity to assess them. We went from 30 people to 14. And while we didn’t quite get to 12, we were able to make some significant changes beyond numbers, such as the inclusion of term limits and the implementation of a staggered approach toward adding new members (i.e., cycle two members off and cycle two new members on every year).
LSL: What does a board look for when considering someone for a position who is also working full time?
RICH DALY: The first thing we look for is an employer’s permission to serve, as these conversations can be very time consuming and a waste of time if the person doesn’t have permission. Beyond this, I approach securing board members similar to hiring; I ask people what it is they hope to teach as well as what they hope to learn. When it comes to posing such questions to a potential board member, the answer either should never be everything or nothing. Because if a person has done everything, then why are they joining the board? What will they be able to learn? Regarding teaching, this is important because we want somebody to come onto a board who can help the rest of us learn. Keep in mind, teaching is not someone coming to board meetings to pontificate, as that is just a bad situation. Another thing I look for is a multifaceted player. There are four fundamental parts of every healthcare company — finance, R&D, operations, and sales and marketing. You need to figure out in which of these four spaces you have expertise. And though it is likely someone won’t be able to play in all four, someone should be able to play in more than one. I can’t fill a valuable board seat with somebody who is good at only one thing. Is it important that they have previous related work experience? If so, then you can expect everyone on your board to be white, male, and 61.3 years of age. We are not interested in that. Of the three boards on which I serve, there is only one female, and that is ridiculous. We want new blood, because that brings diversity.
LSL: What advice would you give to the CEO of a startup company when building its board?
BARBARA YANNI: You really want to have a range of expertise on your board. It’s very helpful to have a strong finance person, as the SEC requires public companies to possess certain financial expertise. While it’s a good idea to maybe have somebody from the very beginning who can fulfill that financial role, it is not necessarily mission critical in the very early days. However, the closer you get to going public (assuming that is your goal) the more important it will be to make sure you have the necessary financial expertise. It’s also good to have someone with general management experience. Of course, a lot of board selections depend upon the stage of the company. For example, if it is a company in the basic research stage, it may be helpful to have some scientific expertise pertinent to that research area. However, sometimes scientific expertise can be captured through the use of a scientific advisory board instead of the actual board of directors. Try to take a big-picture perspective when building your board, and try to think about what your company needs now and in the near future to be successful.
RICHARD BARON: Try to employ foresight when developing your board. A common malady of CEOs is failing to acknowledge the things they don’t do exceptionally well. Don’t view a certain lack of expertise as a shortcoming but a gap, and develop your board with a mind-set of seeking members who can fill that gap. If you’re not the BD person but know at some point you want to do licensing, find someone having the golden Rolodex of contacts, along with the skills that can help push your agenda forward. In the beginning small and niche-y might be a good thing. But always try to be one step ahead of yourself. For example, if you are an expert in finance, you may not need a financial expert immediately. However, if you want to go public, you want to have the people with the necessary skills on your board a year or so earlier so they can be listed in the company prospectus, a document people will be looking at very closely as you transition from a private to public company.
NANCE DICCIANI: In a couple of situations I’ve seen, startup companies pay a great deal of attention to building their management team. They’ll make sure they have the right kind of skills and people that not only complement one another but also fit into a desired company culture. But then these same companies rather quickly put their board together (e.g., they want a name, an affiliation with a certain institution, or some sort of special expertise). Spend as much time on building your board as you do building your management team. A CEO building a board should try to think of it as similar to hiring a consultant. Put people on your board who offer advice you would be willing to pay for. In some way you’re going to be paying that, so you might as well get what you need.
LSL: What advice would you give to the CEO of an established company when thinking about board composition and evolution?
KIRK GORMAN: When you think about where you want your company to be three or five years from now, you need a couple of board members with the appropriate skill sets to get you there. If you are going to be an international company, you ought to have someone with international experience. If you are planning on an IPO, get someone who has some other public company board experience who can help establish the governance environment, a finance person to help eventually lead the audit committee. Assess your weaknesses as a CEO and fill in around those gaps. Not to be overlooked is the intensity and stress of the conversations that go on in the boardroom. Pay attention to the way in which board members fit with each other and with the CEO. It has to be an odd mix of challenge, questioning, oversight, and monitoring from the board. People really work better when they get along, trust, and respect each other. If the interpersonal connections between board members (as well as board members with CEO) aren’t right, it can be a miserable experience. Board members work better when they get along, so don’t overlook the touchy-feely soft spot in all of that. The technical attributes you should be looking for in board members should be where that company is planning to go, not where it presently is. In other words, building a board should have an orientation toward the future.
NANCE DICCIANI: You want people who have lived through certain experiences (e.g., M&A, working in emerging markets, international expansion). In addition, you need people who can honestly and thoughtfully challenge ideas. You certainly don’t want a board that’s going to rubber stamp an idea, because that might not be what is best for the company. Being able to thoughtfully challenge leadership comes from experience and the confidence of having done those kinds of things in the past.
RICHARD BARON: Being that board chemistry is critical, making a board selection should not be just one person’s decision, even in a private company. When you stand back from a typical growth chart, everything seems to always be going up and toward the right. However, if you get close enough you will see there are downs in there as well, and those are tense and struggling situations. Board chemistry is critical in getting through the good, bad, and indifferent times. Remember that you are networking not only with CEOs but also with other board members, and it is often those other board members who lead to other board referral opportunities.
LSL: What are you seeing in terms of gender diversity on boards?
NANCE DICCIANI: In the last few years, even among S&P 500 or Fortune 1000 companies, gender diversity among boards has crept up at a snail’s pace. And though it has been slow, more and more companies have at least one female board member, so we are making progress. But if you look at diversity beyond gender, we are actually not doing so well. The last statistics I saw indicated that the number of African Americans serving on S&P 500 boards actually decreased over the last several years. While the Hispanic or Latino’s percentage had increased by about 1 percent, it’s still very small (i.e., 2 to 3 percent overall). Asian American board membership is currently around 2 percent. I think we’ll continue to see more diversity among company boards because more people are talking about it, and the fact that a lot of these smarter companies understand that having board members with diverse backgrounds, genders, ethnicity, and thought processes provides a competitive advantage.