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Board members are turning to specialized software to help manage their affairs.
John P. Mello Jr., CFO Magazine
July 1, 2004
Board membership may have its privileges, but in this era of increased regulatory scrutiny, it also has its risks. This is not to say that sitting on a board of directors is a bad gig. Serving on a board remains one of the most effective ways for executives to network. It can offer rewarding work to those who have decided to step back from full-time jobs. And despite the hue and cry over executive compensation, board members get paid handsomely for their efforts: directors at larger companies typically rake in more than $100,000 in annual total compensation.
Still, these days they earn it. The Enron scandal initiated a new level of liability concerns; the Sarbanes-Oxley Act of 2002 (Sarbox) effectively multiplied the workload for any director willing to take on the job. Meetings are longer and more frequent. And it's arguably toughest for CFOs, who almost inevitably end up on the audit committee of the boards they join.
Longer meetings and heftier reading loads can create real headaches for directors. In some instances, just coordinating the topics for committee meetings can be a pain. Tom Lienhard, who serves on two boards, knows the problem only too well. "Everyone is very busy, so our work carries over from month to month," he says. "Every month we have the same thing on our agenda. It drives me nuts."
To address this vexation, Lienhard's boards (including the Ronald McDonald House Charities of Spokane, Wash.) recently installed an online software package called Director's Desk. The program, which is designed specifically for board and committee members, is intended to solve many of the logistical problems directors encounter. Using the software, for example, executive-committee members can conduct meetings online. Says Lienhard: "We've actually been able to get a lot more done in less time."
Director's Desk is one entry in an emerging category of software aimed at streamlining board communication and increasing board interaction. Some of these programs, including BoardVantage as well as Director's Desk, provide virtual meeting places for board members, along with specialized document management and communication tools. Others, like the suite from The Board Institute, based in Phoenix, help directors assess their own performance. Bret Beresford-Wood, CEO of Director's Desk Corporate Governance Services, in Post Falls, Idaho, believes the board-software market is set for a takeoff. "In three to five years, a majority of companies will have some form of board-management system."
Is This Anything?
The argument is that using IT to enhance board communication is a logical extension of current practice. "Many CEOs communicate via letter to board members in odd months," says Jay Lorsch, a professor at Harvard Business School and co-author of Back to the Drawing Board: Designing Corporate Boards for a Complex World. In fact, Lorsch is such a believer that he works with a company that is developing software to enhance board communication. "Technology can provide a valuable way for board members to stay plugged in," he says.
"If board members are inclined to communicate with one another, then these platforms will serve a great purpose," predicts Stuart Robbins, executive director and founder of The CIO Collective, an organization for IT executives, in Oakland, Calif.
But some wonder if board software is more hype than help. Nell Minow, editor of The Corporate Library, a corporate-governance research firm in Portland, Maine, isn't sure the stuff is even necessary. "There's nothing in this software that can't be accomplished through conventional communication and password-protected Websites," she says.
Further, the cost of the programs, while cheap by enterprise-software standards, might spook finance chiefs at smaller companies. BoardVantage, for example, charges $2,000 to $4,000 per user per year.
Better communication seems to be the big selling point of board software, experts say. Both Director's Desk and BoardVantage offer secure E-mail and document management in a hosted environment. The feature can come in handy, since labor disputes and takeover bids don't necessarily crop up while board meetings are in session. "Board members need to respond to issues as they arise," asserts Tim Hampson, a marketing consultant with Menlo Park, Calif.-based BoardVantage. "They need to communicate in a secure manner outside those meetings."
The programs also offer secure document handling and repositories; thus, agendas and minutes can be uploaded onto a server and accessed via a browser, eliminating the chore of photocopying and FedExing pounds of paper.
Moreover, directors can see the latest drafts of board documents — and find out who's working on a document. That sort of oversight could prove to be a real plus for overwhelmed directors. Says Kathleen Wilhide, director for financial-compliance applications software research at IDC in Framingham, Mass.: "Having control over the processes and knowing who has what at any given time is much more critical [post-Sarbox]."
On a more practical level, Web access to documents is a time-saver. "Instead of having everyone read the minutes at the start of our monthly meeting," notes Lienhard, "members are expected to have read them online before the start of the meeting."
While management software for boards has been getting most of the attention lately, providers have also begun to roll out programs that evaluate the work of directors. For example, The Board Institute, which offers a Web-based solution to assess and improve boards, has introduced a suite of programs for benchmarking the performance and effectiveness of the audit, compensation, and governance committees of the board.
"It's essentially an online survey benchmarking tool," says Cheryl de Mesa Graziano, director of research for the Financial Executives Research Foundation, in Florham Park, N.J., which assisted The Board Institute in putting together the suite. "Based on answers to key questions, boards can assess the effectiveness of their committees."
Michael Hartzmark, a director at Seattle-based clinical-laboratory specialist Pacific Biometrics, believes the suite will lower attorney and accounting costs. How? Says Hartzmark, who is currently beta-testing The Board Institute's Web-based tool: "[The programs] point out issues where you can make some straightforward and obvious improvements without paying large amounts of money to accountants and lawyers."
The tools also provide benchmarks — often a sore subject in executive suites. Hartzmark believes the tools will help directors figure out what they have been doing — "and what [they] should truly be doing."
Tough love doesn't come cheap, however. The Board Institute charges an annual licensing fee of $20,000 for public- company clients and $10,000 for private companies.
Minow doesn't see the value proposition. "You can buy all the tools and tricks and accessories in the world," she argues, "but at the end of the day, what is required [in evaluating boards] is vigorous, genuinely independent experts and energetic thinking." The longtime advocate of governance reform pauses, then adds: "There is no software that will do that for you."
John P. Mello Jr. is a technology writer based in Woonsocket, R.I.
Upping the Ante
Changing compensation for board members.
Most companies (88%) have made or are planning to make changes to compensation for regular board, committee, or leadership service. Many companies (72%) made changes in 2003; far fewer (40%) are planning changes for 2004.
For those companies making changes (or planning to), the increase in total cash compensation (TCC) was (or could be) significant. In 2003, for those companies that made changes, TCC increased by an average 24%. For 2004, for those companies that anticipate making changes, the increase in TCC will average 17%.
The most substantial change is to committee-chair retainers: 53% of the companies made or are planning to make changes, and those companies making changes essentially doubled the size of their retainers, from $3,700 in 2002 to more than $7,000 projected for 2004.
Source: Sibson Consulting