Board Member Competencies for the AI World

Is your board equipped to govern through the AI era?

In the latest episode of Mintz On Air: Practical Policies, host Jen Rubin is joined by Ginny Johnson, a partner at Outside General Counsel LLP, for a conversation about how artificial intelligence is changing the skills and perspectives corporate boards need to help their organizations stay competitive. Together, they explore:

• Modernizing board composition and director qualifications for an AI-driven environment
• Using candid board evaluations to overcome “toxic niceness” and improve corporate governance
• Aligning board oversight, director recruitment, and succession planning with long-term strategy
• Defining the roles of board chairs, governance committees, directors, and investors in strengthening board effectiveness

Get practical insights into preparing boards to oversee emerging risks and recognize new opportunities in the AI age.

Practical Policies — Board Member Competencies for the AI World Transcript

Jen Rubin (JR): Welcome to Mintz On Air: Practical Policies. Today’s topic: Board Member Competencies for the AI World. I’m Jen Rubin, a Member of the Mintz Employment Group with the San Diego–based Bicoastal Employment Practice, representing management executives and corporate boards, and I enjoy providing creative solutions to workplace problems. Thank you for joining our podcast. If you have not tuned in to our previous episodes and would like to access our content, visit the Insights Center at Mintz.com, or you can find us on Spotify. 

Today we’ll be considering this question: If it is true that the corporate board is an underutilized American corporate asset, how will AI impact the skill sets needed for board members so this asset can be fully utilized? While I can’t promise this episode will answer that question with certainty, I can promise an engaging discussion with my guest, Ginny Johnson.

Ginny just joined Outside General Counsel LLP as a partner. OGC is an innovative platform that combines the practicality and efficiency of in-house counsel with the sophistication of big law and is composed entirely of former chief legal officers, general counsel, and senior in-house attorneys. Ginny’s practice with OGC will focus on fractional CLO GC engagements and strategic advisory work across industries. Ginny will serve as a member of two of the firm’s practice groups: corporate and finance, as well as artificial intelligence, cybersecurity, and privacy. Ginny also recently published a paper titled “500 Conversations: One Legal Executive’s Bird’s-Eye View of the Current Legal Services Market (And Ancillary Musings).” I must say I found this paper very insightful as a full-time law firm practitioner whose majority client base is made up of in-house counsel. I thought this would make an ideal episode topic. Thank you for joining me, Ginny.

Ginny Johnson (GJ): Thank you, Jen. Pleasure to be here. Thank you for the invitation.

JR: Let me start by stating the obvious: AI is here, it is part of the business landscape, it’s part of our workplace, it is integral to our personal lives. And of course, business success starts with its leaders — and you will find those leaders in the boardroom. So as a starting point for our discussion, Ginny: if AI, deployed properly, could make our boardrooms even more impactful with respect to corporate strategy, then wouldn’t that result begin with those who are truly qualified to lead within this paradigm? In your paper, Ginny, you suggest that traditional board members and investors desire individuals to serve on corporate boards who have extensive business operating experience. That, in turn, selects for particular operating experience, which is almost certainly grounded in how business was done in the pre-AI age. Ginny, you posit in your paper that what is dearly needed now is cutting-edge, creative, innovative thought, which AI is driving rapidly and which traditional experience might fall short of delivering. So my questions to you: How will AI change board composition? What types of changes do you think are needed to ensure that businesses are not at a competitive disadvantage? Where do we go from here?

How Will AI Change Board Composition and Director Qualifications?

GJ: My belief — and I think many of us share it — is that the boardroom of today and of the future should be operating in a different way than it was even just a short while ago before the transformation we are all living in now, and that involves many unanswered questions and a great deal of risk and guardrails we need to put around those risks. But it’s not only about risk, it’s about opportunity. When we frame the issue as boards being an underutilized asset, what I mean is, is the composition of the board what it is so that the value of the business is truly being optimized in terms of the way those individual directors collectively are governing that business and looking forward at strategy and the risk landscape, the competitive landscape. These are different ways of governing and overseeing than in the past. For example, a basic thing like quarterly board meetings. Query whether a quarterly board meeting is enough in this day and age, with the velocity of change we are seeing, for the board to truly be up to speed on not only the prior period’s performance, but what is coming ahead, seeing around the corners of what is to come, and how the business strategy needs to adapt and change to make the company successful and competitive in the future. I think AI has everything to do with this. It’s about skill sets and fluency with the technology, but it’s also about the more existential questions pertaining to the business that the directors are overseeing.

it’s not only about risk, it’s about opportunity

JR: The traditional board is looking for people who have operating experience, who have financial experience, who have been running companies — this old-school model that’s been in use for a long time. That has worked for many companies, and it seems to me it’s what shareholders have demanded. But does this governance model continue to make sense? Talk a little bit about how the individuals sitting in the boardroom now may have created or may be participating in this model and are not able to see how the model needs to change. In other words, should this be a competence-first practice or should it be, “Hey, we need people who have been traditionalists and who’ve run businesses in the past?” 

GJ: Certainly I would not advocate that we throw out the window some of the traditional criteria that define what a strong director candidate looks like — and that is operating experience, financial acumen, depth of expertise in the industry or sector of the company. Then when you’re looking at committees and chairs, whether that person has strengths and prior experience with audit and the qualifications required from a public company standpoint. Compensation is its own skill set. I would argue that NomGov — nominating and governance committee chairs — is becoming a more specialized skill set itself because of the issues we’re talking about with respect to board search, succession planning, recruitment, refreshment. That’s putting a spotlight on the role of NomGov chairs as well. 

My premise — something I talk about in my paper — is additive to those baseline qualities of operating experience, financial acumen, industry expertise, the network, which many people want to bring a director onto a board for access to the people and experts in their network. But on top of that — and I think this is why this is difficult sometimes to talk about — this all involves a lot of hard work and an embrace of change. It can be scary. But put a premium on the skills this business needs on its board in order to be competitive and to see around corners going into the future. That does not necessarily mean inviting someone onto the board who is a so-called AI expert so you can check the box — you have one director there, problem solved. That doesn’t work. I think every director needs to be obtaining continuing education around AI proficiency in order to understand how they should be using it and how the company is using it and the questions they need to be asking of management in the boardroom. To sum up, what the difference is between the traditional approach to board-member selection versus what I would hope to see in the future is a much more open-minded view on the modernized skill sets that boards need to effectively govern, and not looking only at whether candidates were previously a CEO, a CFO, or already served on a public company board. There’s a tremendous pool of talent out there that maybe have not held those titles, yet have deep expertise in areas that companies need. A general open-mindedness to more modern skill sets and more diversity and inclusivity in terms of who is coming onto the board as it is refreshed is important.

There’s a tremendous pool of talent out there that maybe have not held those titles, yet have deep expertise in areas that companies need.

JR: You cite in your paper a statistic I found startling. You indicated that 93% of leaders polled said they would replace at least one person on their own board. That’s a high number of people. One of the things you put your finger on in this paper, is that there’s a built-in bias against changing the system. You have your traditionalists versus your open-minded folks. Why is there such a gap between the private sentiment, this 93% statistic you cite, and the actual refreshment rate, which you also cite in your paper, and which some statistics put at less than 10%. What’s the disconnect there?

How Can Candid Board Evaluations Improve Corporate Governance?

GJ: Of course, these are my opinions and they’re derived from roles I’ve been in over many years. I’ve been in a lot of board meetings, as I know you have, too, as an advisor to many companies, and in my role as a corporate secretary, as well as having been outside counsel and attending lots of board and committee meetings across industries. Something I see is, I have a phrase for this and it might be an unpopular one, but I call it toxic niceness. I am by no means urging people to not be collegial or collaborative in meetings. What I mean by toxic niceness is everyone goes into these roles with the best of intentions and not wanting to create friction or be the bad guy or create a situation where they’re the ones getting called out by a board colleague. I mean a tendency to not want to challenge or call out others — whether that’s putting a management member on the hot seat to answer difficult questions in a meeting, or directors providing unvarnished feedback to one another in terms of their own effectiveness in the boardroom. It’s one thing to point out that maybe someone has had spotty attendance or tends to be late for meetings. But I also mean questions of whether a director knows enough to be on that board, whether they’ve been there for many years and provided excellent oversight 10 years ago but perhaps the business has changed such that now the director is no longer the best person to be in that seat. A lot of things get swept under the rug, or people have a critique but ultimately look the other way. People don’t want to rock the boat too much because they’re being kind and nice and collegial, and that ends up translating into not the most effective board. There are some solutions to that we can talk about by way of a third-party facilitated evaluation or a hands-on chair of the board that are crucial to ensuring that communication and transparency is happening effectively. I think that’s an explanation for a lot of the paralysis we see.

People don’t want to rock the boat too much because they’re being kind and nice and collegial, and that ends up translating into not the most effective board.

JR: This is probably an unfair question, but that never stops me from asking: How much do you think this is emanating from the investors and from the shareholders? It seems to me it’s in their interest to have a board that is an asset to the business. If they’re not demanding leaving the toxic niceness at the door and selecting for these new skills, how do you move that needle?

GJ: I hate to give a lawyerly answer and say, it depends. But it probably does depend on whether you’re talking about a privately held context, a PE-backed company board versus a mid-cap or large-cap public company, which is subject to different pressures, different stakeholder/shareholder expectations. It does depend on who those investors are and what the posture of the business is. That being said, there are some basic things I would love to see happen, though I’m not sure how frequently these things happen. How often do we think it occurs in a public company or a PE-backed company context that the directors are showing up saying, “We’ve done an evaluation of our own effectiveness. Let’s make some changes and have an open discussion and act on some of these takeaways about where we could be doing better.” Or another example, public companies all have to do a skills matrix, gets disclosed in the proxy. If there’s a recruitment planned, there will often be a director profile written up, maybe by the NomGov chair and the secretary, to seek a new board member. I wonder in how many instances where that’s occurring it is done with reference to the company’s strategy going forward and what gaps the company has on the board, versus a director profile that’s written to fill the gaps that exist because it’s written by the people who are already on the board, writing up their own skills.

Investors play a role in that. If investors come in and say, “Show me your skills matrix and articulate for me what gaps you found and let’s talk about what the board is doing about them.” How often does that happen?

JR: Probably not as often as it should happen, but let’s stick with that for a moment because this is a great segue. 

I’m going to quote from your paper, because this really struck me. You state: “A criterion that certifies readiness by reference to the last decade is a poor filter for a risk set that turns over faster than the credentials qualifying people to govern it. It selects for the past at precisely the moment the job became about the future.” I thought that was a little frightening. What is the right response here if these folks are not using the right filter for the right skills?

How Do We Align Board Oversight and Director Succession With Business Strategy?

GJ: It comes down to transparent communication and confronting the reality that being on a board is not the same set of responsibilities or expectations as what it once was. I’m by no means suggesting that any individual directors are not working hard or are not extremely conscientious and invested in stewarding their boards. But, again, quarterly board meetings with three-quarters of the meeting spent looking at the prior quarter’s performance and financials and saving very little time to dig into questions like: Where are we going? What are the competitive threats? How does our strategy potentially need to pivot? We’re in a different world now with respect to what governance means and what the duties of directors are. 

We’re in a different world now with respect to what governance means and what the duties of directors are.

Another thing I want to throw in, Jen, because this is on my mind a lot in the roles I’ve had, often being the secretary to the board. I’m someone who is passionate about governance, I aspire to board service myself, I’m involved in a couple of advisory boards and nonprofits right now. I’m always thinking and looking ahead at the landscape and what it means to be an effective director, and the expectations around that. Based on what I’ve seen, I think there’s a heck of a lot more training and collaboration needed between management teams and their own boards in terms of what is getting reported. I’ve seen the opposite ends of two spectrums: You can have underreporting where the key issues are not being surfaced — of course, that’s a massive problem. You can also have dumping, overreporting, where management really wants to show the board that it’s working hard, and you have this board package that is overwhelming. (We should talk later about how AI can be useful to get through these massive board packs.) But is it surfacing the issues of what is most important?

You started at the top with the question of whether the board is an underutilized asset. This might be a controversial opinion of mine, but I think that for a board to be truly effective, it needs to be more hands-on with management. Not every day, not getting into the day-to-day operations, I don’t mean that. But being willing to push for more information. I would love to see board members calling in — let’s say the chief legal officer, chief technology officer, head of health and safety — to just have an executive session debrief. What do you think the board needs to know more about that we don’t know today? Those simple questions. But I think there’s often resistance to that because it’s looked at as directors meddling in management or operations. For the board to effectively discharge its duties and understand what’s going on inside the company and what’s coming next, there has to be greater collaboration between management and the board.

there has to be greater collaboration between management and the board

JR: I completely agree with you because the point you make in your paper is that this is an evolution, right? We have AI going on around us. It’s hard for us to see as it’s causing all this disruption, some of it excellent disruption, helpful disruption and profitable disruption. But it’s hard for us to see it as it’s happening, and then to react to it. One of the things you say in your paper is that boards need to apply the same rigor to their own evaluations, skill assessments, and director succession as they demand of management. You say that boards will continue to oversee twenty-first century risk with twentieth century rosters. Really it comes down to taking a step back and doing this rigorous assessment about what is needed for the business so that these boards don’t fall further behind. I hate to call it a doom loop, because it sounds so negative, and I think this should be an exciting time of evolution and growth. What do you think, Ginny, in terms of what boards should be doing so they don’t fall behind? How do they address this refreshment crisis?

GJ: You mentioned succession and applying the same level of rigor to board succession as boards apply to management. I honestly think there might not be enough rigor applied either way. I think this is the sleeper issue of the next several years — that there’s going to be a cliff we’re approaching of a lot of retirements, both at the management and board levels. Right now you don’t see a ton of change happening — I think it’s because we’re in a period of uncertainty, volatility, transformation. Lots of people are holding on to roles, not retiring, people are living longer, there’s generational expectations of how long we will work. Boards need to do more about overseeing both management succession planning and their own succession planning. What does that mean? It goes back to having a profile for the directors, for the skills they believe they need based on where the business is going in the next one, three, five-plus years. Where should they be sourcing these candidates from in order to satisfy the need for those skills? People can tend to tap into the same networks over and over to find new board members, and that’s not really refreshment if you’re repurposing former CEOs, CFOs, public company board members because they did those roles 10-plus years ago and not because they have a unique, timely, or fresh perspective on what’s going on in the business today. Succession planning is a big deal and we’re going to be hearing more about lack of planning around this and the consequences of that. I read somewhere the other day that it’s estimated that at least 50% of sitting general counsel don’t have an internal successor. I’m not surprised by that, but that’s a big number.

JR: I’m going to ask you another unfair question. Who owns this problem? Is it the board chair? Is it NomGov? Is it a fiduciary obligation on behalf of all board members? Is it the shareholders? Or is it a collective challenge? What is your view about where we start solving this problem?

Who Is Responsible for Corporate Board Effectiveness?

GJ: I do think it is a collective responsibility and not for only one director to worry about or to foist it all onto the chair of NomGov. But clearly the chair of NomGov needs to be setting agendas, making progress, getting things done, reporting out. Even more to the point, the board chair is the ultimate authority of that board, and the rest of the directors, as far as I have seen, are always looking to the chair for cues in terms of which issues to push, what to leave alone, where the consensus is. So I think you need to have a chair who is driving discussion and debate around these issues. If you don’t have that for whatever reason, it’s far less likely that these projects or priorities are going to be tackled. So you need a proactive chair that’s getting it all out on the table and willing to have what are sometimes uncomfortable conversations about board effectiveness, board performance, director selection criteria. You need to be talking about it.

you need a proactive chair that’s getting it all out on the table and willing to have what are sometimes uncomfortable conversations

By the way, I want to give a shout-out here. I read a book recently by an individual named Henry D. Wolfe. He wrote a book called Governance Arbitrage. He is an activist investor, and he’s kind of a contrarian thinker. The book’s subtitle is “Blowing Up the Public Company Governance Model to Maximize Long-Term Shareholder Value.” I cite Henry in my paper. I have chatted with him about his book, and we do disagree on certain points regarding board composition and director selection criteria, particularly around how to go about ensuring diversity and inclusion as a mandate on boards. But I want to give a shout-out to this author and thought leader because some of his assertions in his book are so in sync with my own experiences and beliefs in terms of dysfunction on boards. I encourage everyone who is a governance geek like me to take a look at Governance Arbitrage by Henry D. Wolfe.

JR: Wonderful. I appreciate that suggestion. 

Takeaway and Wrap-up

JR: All of our listeners are I hope hearing the takeaway, which is to think long term, to think big, and also to think evolution, because all of this is happening around us and sometimes it’s hard to appreciate what needs to be changed — whether it’s toxic niceness or whether we need to add a few iconoclasts to the board, which is going to get those contrarians on there to ask these tough questions. I agree with you, Ginny, that this is a shared responsibility. It’s got to be answered in collaboration.

For our listeners and readers: We are going to do this episode in two parts, which is a first for Practical Policies. And I hope you will join us for the second part as Ginny and I delve into how these changes that AI is bringing will impact not just our legal and regulatory framework in terms of the board, but also in-house counsel, general counsel, chief legal officers, and all of the individuals who work in that context. As a teaser, I will say Ginny has called this the “cleanup crew renaissance” — I love that term. If that isn’t enough motivation for you to join us for part two of our discussion in the next few weeks, I don’t know what is. 

Ginny, thank you for joining us today. Again, I’m Jen Rubin and this has been Mintz On Air: Practical Policies.

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