Intellectual diversity: put a premium on wide-ranging knowledge

Directors & Boards, Autumn, 1996 by Joseph R. Hardiman

WALK THE HALL leading to the boardroom of any long-lived corporation and you will see the evolution of the company and its board told in pictures. Compare today's increasingly diverse board with the framed yellowed pictures of men in white shirts and bow ties, and one difference will be immediately obvious: few, if any, women, and no minorities.

That wrong is being made right. Unseen, however, is another coming change that is almost as profound and no less sweeping -- the new intellectual diversity of the American corporate board.

The old-fashioned corporate board was often a friendly group of industry professionals, mostly from within the company, sprinkled with several trusted service providers and a few retired politicians or diplomats to lend prestige. The new corporate board is increasingly an interdisciplinary body that debates and hammers out policies.

Where the board was once rooted in the tradition of a given industry, it is now externally focused on the complex, increasingly global environment in which that industry must compete. Like pilots, these new board members may not know how to make airplanes, but they must be experts in flying through all kinds of weather.

This is why the structure of many new company boards, froth small start-ups to Fortune 500s, are focusing on wide-ranging knowledge, experience, and judgment. This is no less true of the National Association of Securities Dealers (NASD), the securities industry's largest self-regulatory organization where an historical shift in corporate governance has recently taken place.

The 1990s has seen a record level of investor participation in our nation's stock markets. With this participation has come a desire for greater policy input on market structure and regulation. Acting on recommendations made by a Select Committee chaired by former U.S. Senator Warren Rudman of New Hampshire, the NASD embarked on assembling a true "knowledge board." In April 1996, setting a precedent for the securities industry, the NASD board of governors drew a majority of its members from non-industry representatives, drawing from the ranks of individual and institutional investors, public companies, academia, the nonprofit sector, and Other talent pools. The NASD's two subsidiaries, The Nasdaq Stock Market Inc. and NASD Regulation Inc., have also formed "knowledge boards" that are equally balanced between industry and non-industry members.

The task of these boards -- whose members are to a person distinguished. in their respective disciplines -- is not to act as a gilded debating society but to utilize their collective expertise and judgment in establishing policies that mesh the interest of investors with those of issuers and intermediaries. In short, to pilot their respective organizations effectively into the 21st Century.

What is true for a quasi-public institution like the NASD is no less true for corporations. To compete in today's global market requires knowledge far beyond the boundaries of a given business. Insular boards can have tunnel vision. Bringing together individuals from varied disciplines with those having industry knowledge and experience expands a company's vision and with it the opportunity for profit and growth.

Joseph R. Hardiman is president and CEO of the National Association of Securities Dealers Inc., the parent company of The Nasdaq Stock Market. Before he assumed these duties in 1987, he was a managing director and chief operating officer of Alex. Brown & Sons, the securities firm. He practiced general corporate and securities law earlier in his career.