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The Board Game

The Board Game

You might think Peter Solvik has his hands full serving as CIO and senior vice president at Cisco Systems, one of the world's largest and most successful technology companies. But no. In addition to his in-house duties at the $15 billion San Jose, Calif.-based networking equipment maker, Solvik serves on four different external boards of directors of Internet startup companies. Why would he agree to serve on these boards, stretching his already-packed schedule to the limit?

Serving on outside boards expands Solvik's management skills. He's learned about reviewing and approving overall corporate strategy and creating financial plans and has beefed up on financing, recruiting and compensation issues. "These are things for which only a CEO and a board are usually accountable," says Solvik. "By having those experiences at a smaller company, I'm broadening my executive capabilities so that I can move toward general management," he says.

In fact, it was Cisco President and CEO John T. Chambers who recommended that Solvik serve on the boards in the first place. "[Chambers] wanted to provide me the opportunity to broaden my general management skills, to vary the kinds of experience I was getting," says Solvik.

Being on the board of startup companies gives Solvik exposure to new technologies ahead of the pack. And he also brings back to Cisco a diverse range of e-commerce insights about what's happening in the market. "I'm learning what technology [Internet startups] are buying and what they're using it for." Solvik filters this information (without any identifying details) back to his role at Cisco.

Solvik isn't the only one to take on board membership in addition to his highly demanding day job. "Just about every CIO I know is on a board," he says. For instance, Dawn LePore, vice chairman and CIO at Charles Schwab & , serves on Times Mirror's board. And David Starr, CIO and head of e-commerce at 3Com, sits on the board of Best Buy.

Indeed, companies of all sizes are increasingly courting CIOs to be on their boards, according to Phil Schneidermeyer, leader of the technology officer practice at Korn/Ferry International, a Stamford, Conn.-based executive recruiter. "Companies are looking to external thought leaders as to how they can leverage technology to improve customer service, speed time to market and increase market share," says Schneidermeyer, who recruits technology executives for corporate boards. Requests for CIOs are outpacing any other functional areas, he says.

The trend can be traced back to roughly five years ago when boards of large companies felt inadequate to handle the Y2K problem and began to seek the advice of senior technology executives, according to David R. Dukes, veteran board member and former cochairman of technology distributor Ingram Micro, in Newport Beach, Calif. "The interaction started with Y2K, giving CIOs visibility and a voice they had not previously had," says Dukes, who still sits on various boards and now recruits CIOs to be board members. "CEOs got very comfortable with talking to the CIO," he says. For the companies Dukes works with, CIOs are the third-most-in-demand board member, after CEO and CFO.

CIOs considering board service should keep in mind downsides such as personal legal liability, potential conflicts of interest and-not least of all-the time commitment. (Solvik works more than full-time hours for Cisco, making up on nights and weekends the time he takes out for board meetings.) But there's no denying the perks. The emphasis these days is not so much limousines and golf outings as cold, hard cash. According to a 1999 Korn/Ferry survey of 1,000 board members, external board members receive average annual compensation of just over $30,000 plus about $1,000 per meeting (with all meeting expenses paid) along with stock options.

Startup Internet companies are much more likely to offer only stock options as compensation, thereby linking pay to company performance. Some lucky CIOs have even gotten rich thanks to their extracurricular activities. "CIOs on dotcom boards stand to make or have made significant money," says Dukes.

Getting On Board

Serving on another company's board can be tricky. First and foremost, all board members have personal liability for their board service. So, in the event of a shareholder suit, the directors are personally named on the complaint. All companies have directors' and officers'-D&O-insurance to protect their board members from personal liability, but if you're considering board service, you'll want to have your own legal counsel review the policy to ensure it is adequate. (Tip: Make sure you're covered for your personal legal expenses as well as damages.) Another important factor to consider is whether you can afford to commit the time. Is this something you will end up resenting rather than enjoying? Board service for a publicly traded company involves an average of 160 to 200 hours per year, according to Ed Merino, CEO of The Office of the Chairman, a corporate board consulting firm in Irvine, Calif. Patricia M. Wallington warns that CIOs must take the time to investigate the firm's business climate. If the company is involved in a shareholder suit or is ripe for a merger or acquisition, that will signal a heavy time commitment-several extra days per month of meetings would be a common requirement for a board member of a company in the midst of a major transition. "People often forget the time commitment," says Wallington, former CIO of Xerox, now president of CIO Associates, a consulting firm in University Park, Florida. Wallington currently sits on the board of Comerica, a multistate financial services provider.

Dukes cautions that CIOs in due diligence mode get to know at least the chairman of the board. You should try to establish that you like and respect the chairman, and-ideally-a few other board members. If not, board service will seem more like a chore than a calling.

And potential conflicts of interest lurk in the background. All companies have ethical guidelines that spell out conflicts of interest that would bar their executives from serving on a particular board. The overarching principle is that a board member must do nothing that compromises the shareholders' best interests. This is part of the directors' fiduciary duty of loyalty to the company set out in corporate law, according to Merino. "A good rule of thumb is that there should be as much independence as possible between the home company and the board company," he says.

In a situation where the CIO's home company spends three-quarters of its IT budget on the board company's technology, for example, there is an implication that the CIO might pay more for the technology in order to increase the value of his stock options at the board company. That is, of course, unacceptable.

In today's world of frequent mergers and acquisitions, it is common for a conflict to arise during a board member's service. Say, for example, the CIO's board company gets purchased by the arch rival of the CIO's home company. In this case, the independence between the two companies may be compromised. Conflicts will come up, says Merino. Full disclosure is the solution. "Once you've disclosed the facts that give rise to the conflict, you remove yourself from it," he says. In some cases, resigning from the board may be the only way to resolve the conflict. There are many gray areas that are tough to call. All can be resolved, says Merino, by disclosing the situation and doing whatever is necessary to act in the shareholders' best interests.

Time Out

Education is the top reward most CIOs cite as the reasons for adding the complexity of board membership to their work lives. When she was CIO at Xerox in the late 1990s, Wallington served on the board of Fina, the US subsidiary of Belgium oil company PetroFina Group. When PetroFina made an offer to acquire 100 per cent of Fina's stock, Wallington had to bone up on acquisitions-fast. "I had to learn about stock prices, legal liabilities and hiring investment bankers," recalls Wallington.

"That was a pretty interesting experience," and one which she probably would not have had at Xerox, says Wallington. One caveat: The more interesting the experience, the more time-consuming it will likely be. Wallington recalls during the proposed Fina acquisition, her board duties ate up 10 per cent of her time, or roughly two extra business days per month-up from about one day every quarter. (Most boards meet four to six times a year; in addition to meetings, board members have conference calls about once a month for routine business and email correspondence.) Being on a board tends to fatten up one's Rolodex, sometimes in unexpected ways. Since Solvik sits on boards along with partners at prominent venture capital firms, he often gets introduced to new talent with new ideas. Back in 1995, a partner at Sequoia Capital-a fellow board member-introduced Solvik to the young founders of Calico Commerce. Calico had a client-server-based configurator program that turned out to be a perfect fit for one of Cisco's previously unfulfilled needs. On Solvik's recommendation, Cisco became one of Calico's earliest customers (though Cisco's interest in Calico precluded Solvik from serving on its board).

"We got very early visibility into a company before it was even venture-funded. We were able to have a lot of influence over them and how they developed their product," says Solvik. "We have relationships with a lot of startups, VCs and other members of the Internet ecosystem. We tend to find out about new trends very early in their development."

Conflict Management

Being on a board of a nascent company can give CIOs the opportunity to help grow a venture from the ground up. "I tend to be a builder. I like to create things," says Bruce Parker, executive vice president at Sapient, an e-commerce consulting company in Cambridge, Mass. Two years ago, Parker joined United Airlines as CIO and senior vice president of information systems. One condition of his employment was that he be allowed to stay on the board at Sapient, which he had joined in late 1995 while he was CIO and senior vice president of management of information systems at Ryder System.

As the years went by, Parker found being close to Sapient put him at ground zero of the new economy. "I was attracted to the freshness, the newness, the growth. It was so exciting to watch Sapient transform itself into a premier e-commerce services company," he says. Sapient built the Web site nordstromshoes.com, the largest online shoe store. The company constructed sites for eTrade, Hallmark and BankBoston. Sapient also built United Airlines' e-commerce site-when Parker was CIO of United.

To mitigate this conflict of interest, Parker recused himself from all decisions regarding the choice of web developer for United's site. "When it came to the selection of the vendor, I did not enter into the conversation," says Parker. "It wasn't really hard to do, as a practical thing. Emotionally, it was a little more difficult. I clearly had a feeling about who [the vendor] should be but I understood the need to stay out of it." Parker worked with United's top management and legal department to ensure he had no undue influence in the eventual decision to go with Sapient.

In the meantime, Sapient had gone public, and the issues facing the board were more interesting than ever. Late last year, Parker admitted to himself that he wanted to work full time for Sapient. After working on a multi-airline travel portal in his role as CIO at United, he recognized e-commerce is where it's at. "I realised industry is going through a huge change and Sapient is a key part of that. I reached the stage of my life where the excitement was too compelling to ignore." He tendered his resignation to United with regret but without remorse.

Says Parker, "I don't think [United management] felt betrayed. They knew why I wanted to do this. There was nothing surprising about it." He adds that there was nothing in his employment contract to restrict him from going to work at Sapient.

Several high-profile CIOs like Parker have left their home companies to pursue a full-time role at the company on whose board they serve. While Tom Thomas was CIO at 3Com, he served on the board of Vantive, a customer relationship management software vendor. Thomas subsequently left 3Com to become CEO of Vantive. Though companies' ethical guidelines usually don't expressly prohibit this behavior, that might change if more CIOs jump ship to work for their board companies, especially given the dearth of talented CIOs, says Wallington. The realm of board membership to date has been based on "gentlemen's agreements." Most companies do not micromanage their officers. The tradition is not to discourage the person from serving on the outside board. That's been the tradition, but it certainly could change.

Despite these gray areas, most CIOs who have served on a board downplay the potential for conflicts of interest. "[A conflict] is a checkoff item that is handled early on. So be careful. If there's a hint of a conflict, you don't do it," advises Dukes. In any case, the ethical issues are no greater for CIOs than for any other board member.

"You have to be careful about potential conflicts," says Solvik, who turns over any conflict questions to Cisco's legal services department for in-depth examination. Most board members serve on an average of two boards, and many companies restrict their executives to serving on only one external board. Just in case you're looking for a high-profile CIO to serve on a board, please don't call Solvik. With four board memberships, "I'm maxed out," he says.

WHAT DOES IT TAKE?

Skills you need to be an external board member Serving on an external board of directors requires a very specific skill set, one that might differ from what you're used to. Here are the top skills you'll need to earn your place in the boardroom.

Ability to think strategically. "You must have a strategic mind-set, an ability to see where the business is going," says Phil Schneidermeyer, leader of the technology officer practice at executive recruiter Korn/Ferry International in Stamford, Conn. "If historically you've been viewed as a back-office support function to the company, it will be a challenge for you to be part of the strategy discussion and have an impact on the direction of the company." CIOs must become accustomed to thinking of the big picture, concurs Patricia M. Wallington, a veteran board member and president of CIO Associates in University Park, Fla. "When you're on a board, you're managing on a different level. You can't be a micromanager. You have to take the long view," she says.

Ability to communicate 360 degrees. Obviously, you must be able to form good relationships with the CEO and your fellow board members. But your task doesn't stop there. "CIOs must be just as good at communicating with the line managers," says Schneidermeyer. "Middle managers are going to approach you, and you'd better have something to offer when they do," says David R. Dukes, veteran board member and former cochairman of Ingram Micro in Newport Beach, California.

Excellent business skills. It's a scary prospect to imagine being a board member if your general business skills-finances in particular-are not up to snuff. It will quickly be apparent if you do not have business basics (such as what it means to have a fiduciary duty to the shareholders and the ins and outs of a 10K) down pat.

Ability to lead, motivate and develop people. Succession planning is one of the major roles that a board member plays-CIOs must have at least some familiarity with this topic. "Never forget you're helping to establish the culture at a company. You can affect the quality of the work environment. The walls of arrogance that used to exist between board members and the management are gone," says Dukes.

-L.G. Paul

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