What It’s Like To Be On The Board of a Fortune 500 Company

Who does a CEO report to?

Most people in corporate America fall into one of two categories. In the first camp are those who work with CEOs in some capacity – senior leaders at corporate, their immediate support staff, the fateful associate who takes all the meeting notes, etc. Then there is a second camp of people who have virtually zero exposure to the CEO. These are your analysts, cashiers, and truck drivers of the world and they often don’t even know the CEO’s name.

But there is also a third group of people, those that the CEO reports to, called the Board of Directors. Though board members are rarely mentioned in the press and paid far less than CEOs, make no mistake – they are the governing body of the corporate world. They can fire the CEO, decide how much executives get paid, and have to give their blessing on any major decision a company makes.

I sat down with an executive who is currently on the board of several Fortune 500 companies to ask a simple question – what do you actually do? They agreed to be interviewed on the condition that they remain anonymous. Below is an excerpt from my conversation.

Can you start off by telling us how many boards you serve on?

I used to be on five boards but currently I’m on four – all of which are publicly traded companies and in the Fortune 500. You know as I think about it, two or three is probably the right number of boards to be on.

That’s good to know, I’ll keep that in mind (laughs). A lot of folks in corporate America probably have a sense of what a Board of Directors is, but don’t know the specifics. Can you explain in simple terms what a board actually does?

Well the first responsibility is to ensure the company is being run in the best interest of shareholders – to hire the CEO, set the strategic and financial targets, approve the budget, and make sure that all of those align to be in the best interest of shareholders. That can mean the stock performs well, that can mean we issue dividends, it just depends on the company.

Governance is the other big responsibility. There are three major committees required by the SEC: Nominating / Corporate Governance committee (overseas board member hiring, process of hiring the CEO), Compensation Committee (approves the salary of the CEO, compensation for the whole company), and the Audit Committee (outside auditing firm that reports to the board). Each board member sits on 1-2 committees and each committee consists of 3-5 board members and no one else.

Boards meet four times a year and if we meet five times, the fifth meeting will almost always be a strategy discussion.

And when you say board meeting, most people probably think of you taking a corporate jet somewhere, eating a fancy dinner, and showing up to a few CEO meetings before taking the jet back. How accurate is that?

See Jay, it used to be that way but its changed in the last ten years because the activists [investors] have gotten more involved. It’s a real job. You really have to stay in touch with the company and understand what its doing.

For example - one of the things I do for boards, at their request, is I go out in the field and sit down with [various] teams. I’ll hear what they have to say and report back my findings back to the CEO – here are some things you can improve upon and here are some things you’re doing well. It’s really involved now, unlike the old days.

Can you walk me through the days leading up to and after a board meeting? I mean how do you actually spend your time?

A week or two in advance of the meeting, the company sends out a package with reading materials for the board. There will be material specific to each committee and then overall reading to complete. That way everyone comes to the meeting prepared.

I’ll fly out the day before the meeting – most often commercial and occasionally private – and have a dinner the night before with the board and CEO. Usually dinner will also have an agenda. For example we may bring in an expert to talk about a relevant topic (like the future of energy, or cyber-security, or something like that). Sometimes the CEO may want to discuss something, maybe a potential acquisition. It just depends but there’s always an agenda for the dinner.

The following day we’ll have a full day of meetings as either a board or as committees. After each board meeting, we’ll have an executive session where we have a chance to tell the chairman or chairwoman about topics we didn’t address today that were on our mind. Their responsibility is then to go back to the CEO and say ‘here’s some things we need to pay attention to’. And the expectation in the next meeting is the CEO will come in addressing those points.

For some reason I have a hard time seeing an executive writing everything down. Is there some associate in all these meetings taking notes?

(Laughs) There’s always an associate – usually from the legal department. You know Jay, at this level – it’s the White House. Everything needs to be clearly documented and written down.

As I’m hearing you talk, the dynamic between the board and the CEO sounds very collaborative

It is collaborative. You gotta remember, the board meets five times a year. The CEO is there 365 days a year with his / her team, they’re the one on the frontline. We don’t get in their way of them operating management. How could I come in for a day and a half meeting and tell a guy what to do for the next 90 days?

On the topic of collaboration, what does a high performing board look like?

That’s simple - [the company] results. You know you’ll have some boards where the chemistry isn’t right. You need to have a cohesive thought process to move the company forward. If you have a fragmented board, it just doesn’t work.

And if a board member isn’t performing well, we get rid of them. I’ve been on boards where the SEC is in there. I’ve been on boards where the Department of Justice is involved. You don’t want that. You destroy companies when you do that. You destroy shareholder value. So what you try to do as board is make sure people are above board. You guard against anything that hurts the companies from an outside perspective. It all comes back to governance and taking care of shareholders.

I’m guessing that looking out for shareholders entails making sure the stock price is behaving. Do you ever have to balance keeping Wall Street happy and pursuing what you think is the best answer for the company?

When I’m in a board meeting, I don’t think about [the stock price]. When I’m in a board meeting, I think about one thing: how can I make this company better? Is this company moving forward? Is it getting better? Because if it is, the stock price will take care of itself.

Analysts are always probing…but you can’t give them any more information than you give anyone else. Every quarter we’ll have an analyst call after earnings and I’m on all the calls because I want to hear the questions they’re asking. We do try to answer their questions, we try to give them as much detail as legally possible, and then we leave them alone.

So if you evaluate the CEO, who evaluates you?

Each year, all of our names are put up for voting by the shareholders. Shareholders say yes or no and vote [to keep the director]. If the shareholders vote yes, we have automatically put our name in for resignation and the board determines if they are going to accept [the resignation].

We [also] evaluate ourselves every year, the CEO has input but the board members evaluate ourselves. We do it in different ways. Some years we will evaluate ourselves internally with a questionnaire and document what’s working and what’s not working and then we’ll provide the feedback to the chairman of the board.

On the second or third year, we’ll get an outside member to look at the board. And they’ll do it independently and they will provide that feedback to the lead director or the chairman, saying here are the strengths and weaknesses of the board.

So you have to earn your keep as a board member every year?

Absolutely. And it’s not just board members. The CEO’s name is in there too because they’re usually on the board!

What advice would you have for a senior executive who wants to be on the board of a Fortune 500 company?

I think they should start by getting some board experience with social or charitable companies if they can. There are also smaller companies in the Fortune 2000 list that still require expertise on their board.

It’s also good for senior executives inside a company to come to or participate in board meetings. We request most of the CEOs to bring their staff so the board can interact with them. You can learn a lot that way as well.

You can use executive search firms, but you typically need to be in the top 5 executives at a company because they’re not going to go below that level.

Well [redacted] I appreciate your time, this has been incredibly interesting to talk about. Is there anything you’d like to add?

[I’ve] sat on boards with some amazing people who have done some amazing things in the world. People who have grown small companies into Fortune 500 companies. It has also allowed me to be involved with people who have been engaged in the highest levels of scientific research and our country’s security. The people I meet in this job are brilliant. Plain brilliant.

Update: See here for a discussion of this article on Hacker News