Industry Expertise on Corporate Boards — The Harvard Law School Forum on Corporate Governance

Small business need-to-know and takeaway how-to in setting up your board of directors.

Excerpt:  Of all requisite competencies, industry expertise is perhaps the most important attribute for board members because it equips directors with a deeper understanding of the risks and opportunities in a specific industry and also enhances directors’ knowledge of the regulatory environment and key industry players. These points are well understood by practitioners. The consulting firm McKinsey & Co. states in a 2006 report: “…in our work with boards we find that too many simply lack directors who have industry expertise to participate effectively in shaping strategy… [W]e believe that on a board of, say, a dozen directors, a litmus test of strategic energy is the presence of at least three or four members who have deep industry expertise in the core business and market conditions the company faces” (Carey and Patsalos-Fox, 2006). Similarly, 40% of respondents in a recent survey of S&P 500 firms identified industry expertise as a desired background for director candidates, second only to financial expertise at 42% (Spencer Stuart, 2011). Nevertheless, there is a conspicuous void in the literature concerning the impact of this board attribute. We aim to fill this gap by examining whether, how, and in what circumstances directors’ industry expertise enhances board effectiveness.

Read full article via Industry Expertise on Corporate Boards — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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