8 Questions for Choosing a New Board Leader

Use these eight questions to guide your search for a new board leader.

1. Are we aligned on the qualities we’re looking for? Boards should be searching for someone who can maintain a collegial yet objective relationship with the CEO that is built on trust; with relevant strategic experience to help guide the company in the right direction; and with the courage to challenge management and the board when appropriate and encourage the same of other directors.
2. How active should the CEO be in the selection process? Because the chief executive will be working with the new board leader on a regular basis, making many of the key decisions on strategy and talent together, he or she should be involved in identifying and interviewing candidates for board leader and vetting and picking the finalists.
3. Are the CEO and board leader clear on their respective roles? If the board leader’s role is not defined clearly, a host of operational problems could arise, including a wedge between the board and the CEO or the board second guessing the CEO. We know of several companies where activist investors have texted the non-executive chair in hope of opening a separate channel to the top.
4. Has the board agreed on the right capabilities for a board leader? As boards become increasingly diverse, a board leader needs to have the emotional intelligence and persuasive skills to collect and interpret multiple points of view from the directors and then deliver them to the CEO in a cohesive and comprehensive manner. Another concern is whether the leader should have CEO experience. As the number of active or former CEOs chosen for board seats continues its dramatic decline, we believe CEO experience is an increasingly important asset.
5. What will we do if multiple directors are interested in the board leadership role? Having two or more directors competing for the lead job can be awkward. One step boards can put into place in advance of selecting a new leader is to ask directors to complete a survey in which they identify the three or four directors that the board could not live without. If those raising their own hands haven’t been mentioned, they are unlikely to be board-leader material.
6. How much should we pay the board leader? The work of a board leader often imposes at least twice the time burden faced by other directors, which can tempt boards to pay their leader significantly more than other directors. While every company has its own history and pay practices, the directors we interviewed advised against this, because it could create the appearance of a two-tiered board. However, the board might want to establish a process for a special equity grant contingent on certain goals or left to the discretion of the board when a lead director performs extremely well — for example, helping the CEO through a crisis, successfully leading a succession, or guiding a major acquisition.
7. Should we set term limits? There’s been an ongoing debate over whether lead directors should have term limits. Among the S&P 500 in 2022, lead directors had on average served 4.4 years. Our conversations suggest that term renewals should be allowed and term limits are not necessary. Why force a still relatively new board leader to step aside if they’re still performing well?
8. What is the succession plan for our board leadership? Governing boards ought to recruit more CEOs onto them to ensure a rich pool from which to select a future leader. To that end, the institutional investor community would be wise to revisit the notion that active CEOs be limited to serve on only one outside board. It might well be suitable, for example, to encourage chief executives to sit on more than one board when they are a year or so from retirement.

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