With each difficult market situation, the board can put more and more pressure on making changes. This often involves adjusting the board configuration. Corporate board members must accept the need for leadership evolution, even when they may have to leave the board.
The recession is fearing mounts, and there is a growing possibility that the committee will pressure them to add or subtract boards as businesses try to handle how Trump administration's policies will affect businesses. In some cases, shareholders may wish to add directors to their boards with certain skills that can better align with shareholders or management's views through rapidly changing market conditions or with how the company achieves maximum growth.
We're already seeing signs of this. Sleep Number Corp. recently agreed to a reorganization of the board, including the Stagguard retirements of five directors. The largest shareholder, Stadium Capital, was ready to run the candidates' slate against the current board during elections at the upcoming annual meeting, but withdrew the plan after several directors agreed to step down. In a statement, the company said the board's relocation “is aiming to create a smaller, more agile board of directors that focuses on strengthening the company's performance and profitable growth.” “We're looking forward to seeing you in the future,” said Alexander Sieber, co-founder and managing partner of Stadium Capital. “The Sleep Number Board and leadership team are challenging, but they take the necessary steps to position the company as a success.
Although it is a relatively small company with a market capitalization of $142 million, large companies can expect shareholders to seek changes to board and company leadership again this year. Below are some scenarios that could lead to changes in the board's composition this year. This may mean that certain directors should consider leaving the current board.
Lack of strategy agreement between the board of directors, shareholders and management teams. If the director is not in line with the strategy with other boards, CEOs and biggest shareholders, it may be better to resign or retire voluntarily rather than to remove the shareholder in the proxy battle. If the director disagrees in the direction most board members agree, if they want to change their minds in a way that doesn't ruffle too many feathers, they need to be very persuasive and diplomatic. Leaving a board that gave a positive impression as a director who respectfully offers constructive critique is hoping to leave a negative impression as an offensive and obstructive director.
The board requires a refresher of skills and experience. The current market situation is increasing pressure on the board. Frequent communication between boards, managers and shareholders helps ease some of the potential liability that boards tend to suffer when companies face difficult economies. However, after these important conversations occur, changes to the board configuration may be inevitable. Each director must face the possibility that it may not be suitable for the current board. New skills and experience may be required to accelerate the growth of your company. Once the company's instructions are agreed, the directors can honestly assess whether they have the skills, experience and insights to significantly contribute to the company's future success. If you have any doubts, it may be best to have the director resign and find a board position in another company.
Changes may be inevitable. Read the room. In recent years, boards, which have shown limited financial performance, have little leverage to resist calls for change in the composition of the board. Companies are pressured to make changes. Or shareholders will rebellion. Directors take the risk of appearing ignorant when they defend poor records strongly. Negotiating changes to the board to move the company forward could be part of a turnaround plan that will satisfy most stakeholders. Each director should understand that as part of those negotiations, they themselves may be removed from the board. Instead of waiting for it to be removed, consider moving forward at the time properly provided. Looking for bigger challenges on another board that requires your expertise can be more rewarding to fight to stay where you might not be grateful.
