5 Steps for Onboarding New Directors

As workforce demographics evolve and Baby Boomers, many of whom likely serve on your captive insurer's board, retire daily over the coming decades, it's essential to plan for new director orientation. While captive insurers have traditionally experienced stable boards, signs indicate a shift as the Baby Boomer generation departs. Do you have a strategy in place to replace them? Below, we outline five steps for onboarding new directors, drawing inspiration from the National Association of Corporate Directors (NACD) monograph on the topic.

Step 1—Offer new directors an overview of significant economic, political, and demographic shifts impacting your captive insurer.

 A briefing, prepared by your captive manager or internal executive team with input from existing board members, can help achieve this. Providing both written and verbal presentations ensures clarity and encourages independent thought and engagement from new directors.

Center the discussion on the current situation and offer projections for the next 3–5 years based on the board's perspective. This enables new directors to grasp the board's vision for these key components of the corporate strategy. Additionally, encourage independent thinking among new directors, inviting them to contribute their own insights and challenge prevailing notions. Embracing fresh perspectives can enrich board discussions and decision-making processes.

Step 2—Offer historical context. Share the origins and evolution of your captive, highlighting key milestones and successes.

Institutional knowledge holds immense value, often overlooked until its absence becomes evident with the departure of key individuals. While some may view the following suggestion as excessive, we advocate for its consideration by captive insurers.

Drawing from our experience serving on a nonprofit board, we found tremendous benefit in providing each new board member with a detailed "story" outlining the organization's formation and historical journey. This practice, overseen by the executive director and chair, included annual updates to maintain relevance, fostering a deep understanding of the organization's evolution among new members.

Additionally, we recommend pairing new directors with seasoned counterparts from the board or senior management team. These informal meetings, often held over lunch or dinner before scheduled board sessions, offer invaluable one-on-one interactions, and facilitate the exchange of insights. Such initiatives not only provide new directors with mentorship but also nurture positive relationships between the board and management team.

Step 3—Clarify the distinctions between the responsibilities of the board and those of management.

As stated in the NACD executive summary, the traditional adage "noses in, fingers out" aptly characterizes the board's oversight role, while management handles the day-to-day operations. However, as directors expand their influence, they must maintain clarity on this division to prevent friction with the executive team. It's essential to delineate the board's focus on long-term strategy and vision from management's responsibility for tactical implementation. Confusion and issues arise when the board encroaches on management's domain. Establishing clear communication expectations between the board and management is equally vital to avoid misunderstandings and ensure effective governance.

Step 4—Understanding a board member's fiduciary duties and their practical implications.

We recommend introducing new captive board members to their fiduciary duties through a briefing led by outside general counsel. This discussion should emphasize the significance of the "care" and "loyalty" obligations. Loyalty poses challenges, especially for directors serving on group captive boards. It necessitates prioritizing the captive's interests above all else, even when they conflict with those of their affiliated organizations.

To address this issue effectively, we've found that engaging in a roleplay exercise, such as the "game of hats," can be highly effective. Directors are tasked with reaching a consensus on a strategic matter while wearing their "board" hats. If they inadvertently advocate for their member organizations, they are prompted to switch to their "member" hats. This visual representation helps underscore the importance of loyalty and fosters a deeper understanding among board members.

Step 5—Encourage new board members to compile a list of questions for both the existing board and management, fostering productive dialogue.

Inviting new board members of your captive to formulate these questions offers insight into their priorities for the organization. Moreover, it cultivates an atmosphere of open dialogue and robust communication, essential elements for the effective functioning of your captive board.

As the landscape of the workforce evolves and Baby Boomers retire, the need for effective onboarding strategies for new directors becomes paramount. The outlined five steps provide a comprehensive framework for ensuring smooth transitions and fostering productive contributions from new board members. Embracing these practices not only strengthens governance but also paves the way for innovation and adaptation in an ever-changing environment.