What makes the best boards different

My colleagues across Fortune have dissected the rankings along many dimensions, including gender equality, racial diversity, the implications for CFOs (who are filling fewer new board seats), and how CEOs and boards can best collaborate on corporate guidance. Sister newsletter Term Sheet also explored what these findings mean for the startup and VC worlds.

For those filling board roles in the near future, here are several factors to consider: 

Push for board independence

Board members should have few other governance obligations or ties to the company. Per Fortune’s Modern Board 25 ranking, companies that scored higher on board effectiveness have an independent board chair, board leaders who are not active company executives, and directors who are not already board members at other companies. This not only prevents possible conflicts of interest but also takes into account the increased workload associated with directorship today, leading to better business performance. Companies should also shy away from tapping CEOs to be board chairmen.

Diversity with purpose

It’s not enough to seek out a Black or female board member. While critical, board diversity should also serve a purpose and extend beyond typical racial, ethnic, and gender metrics.

Diligent’s data assessed the mix of gender, racial, nationality, and age dispersion on boards, along with expertise and independence. First-time board members are ideal because they have the time to commit to the role, and are often more diverse than those who have historically served on boards.

New members can also bring a wider set of expertise, such as talent strategy, cybersecurity, or specific industry knowledge that aligns with a company’s market activity. For example, a marketing software company may look to add a former CMO to its board; a company expanding internationally may add a former regional executive; a company looking to grow its government revenue could add a former federal leader.

New expertise needed

The growing importance of ESG, corporate participation in solving social justice issues, emerging talent, supply chain, and cybersecurity challenges have forced boards to seek out a broader range of executives, besides CEOs and CFOs, who have long dominated boards.  Companies are also adding directors with backgrounds in academia, government, and the nonprofit space. 

Every top-25 company scored highly in board expertise relative to its S&P 500 peers.

How to differentiate

Board independence, gender diversity, nationality dispersion, and age dispersion were the board effectiveness attributes with the greatest variation across the Modern Board 25. To wit, they represent the best opportunities for board differentiation and competitiveness.

P.S. Please take the Modern Board reader survey: We’d love to know your thoughts on this newsletter! If you’re able, we would greatly appreciate your feedback in this two-minute survey to help us better serve our readers.

Aman Kidwai
aman.kidwai@fortune.com

Headlines

HEADLINES

Alphabet vote on board selection. Google’s parent company will vote on two shareholder proposals on board selection policies at its June 1 shareholder meeting. Arjuna Capital filed a proposal requesting that the company report its policies and practices for selecting racially and gender diverse board remembers. SOC Investment Group, who has also been vocal at Starbucks and Activision Blizzard, submitted a proposal suggesting that Alphabet’s board include non-management employees on its initial list of candidates for a new director seat. Corporate Secretary

Netflix tanks. “Our revenue growth has slowed considerably,” Netflix said after announcing a 200,000 net loss of subscribers in Q1, against a projection of 2.5 million new subscribers. Its stock sank 35% in one day and a major investor sold its stake in the company, taking a $400 million loss. The streaming giant first attributed slowing subscriber growth to the relaxing of COVID-19 measures and its pullout in Russia, but later admitted that  increased competition and password sharing will affect its long-term trajectory. Netflix says it is focused on improving the quality of original content, expanding its global presence, and will consider an ad-supported offering. Washington Post

The Musk, Twitter saga. Elon Musk has gathered the necessary resources for a private takeover of Twitter after a board appointment didn’t take place. Through a combination of loans and personal wealth, Musk is committing $46 billion to his bid, prompting Twitter’s board members to now consider their options. They already administered the “poison pill,” which allows shareholders to purchase stock at its market price to prevent ownership takeover. After Musk rejected a Twitter board seat, CEO Parag Agrawal warned of distractions ahead in a company wide memo. One week later, the social media platform is facing a public proxy fight with the wealthiest man in the world…and a notorious Tweeter. The Verge

Amazon workplace scrutiny. A group of New York pension funds is pushing for the removal of two Amazon board members due to the company’s poor workplace safety record. The groups allege that directors Daniel Huttenlocher and Judith McGrath have not fulfilled their duty to oversee worker safety, citing high employee turnover and injury rates. New York City’s Comptroller said Amazon has repeatedly declined meeting requests to discuss this topic. Wall Street Journal

 

BOARD MOVEMENT

Activision Blizzard has announced the election of Lulu Chemg Meservey, vice president of communications at Substack, the online newsletter publishing service, and nomination of Kerry Carr, an HR SVP at Bacardi Limited, to its board. SolarEdge Technologies has appointed Dirk Carsten Hoke, former CEO of Airbus Defence and Space and a former longtime Siemens executive, to its board. Anna Baird, chief revenue officer at Outreach, and Melissa Selcher, chief marketing officer at LinkedIn, are joining the board of the SPAC formed by the merger between SeatGeek and RedBall. SEI Investments has appointed Capgemini EVP Jonathan Brassington to its board. Florida’s Bank of Marin is actively looking to add new directors, expressing interest in adding female board members.

Numbers That Matter

40%

Executives are reporting 40% higher satisfaction with their work-life balance than non-executive knowledge workers right now, according to Future Forum, a research consortium funded by Slack.

With around a third of knowledge workers back in the office, work-related stress and anxiety is at its lowest since the Future Forum began these quarterly pulse checks in 2020. The research also found that full-time office workers have felt the steepest declines in satisfaction and that workers who don’t have flexibility over their hours are 2.6x more likely to be looking to leave. Additionally, executives are not back in the office at the same rate as non-executives, perhaps contributing to this large chasm.