Board Rcruiting 101: Redlections and Suggestions on Best Practices
The recruitment of corporate board directors is a topic that has been receiving increased attention of late. The reasons for this are many. To begin, until the numerous corporate implosions of recent times such as Enron, WorldCom and Lehman Brothers, we used to believe that boards of directors were sacrosanct. The board was considered above judgement and those within the boardroom were beyond critique. The board also functioned in quite an opaque manner and the idea of board directors meeting with shareholders (as has been happening these days) was unheard of. Additionally, it used to be that board invitations were lifetime appointments and rarely was there a competitive vetting process because board directors usually came from a well-known and connected population of CEOs. All of this is changing.
These days, boards of directors are being held increasingly accountable and the role of board member is more complex and time consuming than ever. According to the 2015 PWC public company governance survey, directors “spend an average of 248 hours annually on their board work.”
The composition of the board is also being focused on and questioned with more regularity. Boards are being held to task and must have the right mix of experiences, diversity and tenure. Government bodies, regulators and investors have something to say about all of this and interestingly, customers and employees are beginning to weigh in as well.
As a result of the many increased demands on boards of directors, the manner by which boards go about populating themselves should be evolving as well. Boards generally go about recruiting new directors in two general ways. One is through their own network and the other is through engaging with a professional executive recruiter. According to the 2016/2017 NACD (National Association of Corporate Directors) Public Company Governance Survey, sources of director candidates are as follows: 37.7% search firm, 27.5% personal networking/word of mouth, 22.2% identification by a board committee, 5.7% shareholder suggestion, 1.4% director database and 5.5% other. No matter the methodology, the end result must be a highly qualified director who can add value, wisdom and unique expertise to the board and the company it serves.
Let’s look briefly at the two most common options for recruiting board directors. When a company has an opening on its board or anticipates one in the near future, it may feel very natural and appropriate to go around the boardroom table and ask each director for ideas and recommendations. Historically this was often how it was done. To add some robustness to the process trusted advisors such as a lawyer or accountant might be asked as well. But the result is the same, new director candidates would not always be the most qualified or best people for the role. Rather they would be the proverbial low hanging fruit. Those that are known to someone affiliated with the company.
The other avenue for recruiting board directors involves engaging with a professional Executive Recruiter who has board recruiting as their specialty. This is important because the board recruitment process is quite different than other types of recruiting.
When working with a board recruiter the following steps should take place. Initially the recruiter or recruiting team will meet with the nominating and governance committee and usually the CEO. Other members of the board may be included as well as members of the executive team such as the General Counsel and/or head of Human Resources. The purpose of this initial meeting is to understand what the board is looking for. This should include an analysis of the current board makeup with a full enumeration of skills and expertise. A matrix diagram can serve to lay out all of this information so that gaps can be visualised and easily understood. The board recruiter should also analyse the company’s strategic plan and near term objectives to further determine what type of director would be best for the company. The result of this discussion is an overview of the various qualifications and skills that the new director should possess. As there are very limited board seats, each board director should ideally have a multitude of qualifications and relevant expertise that can be easily identified as their reason for being on the board.
All good board searches need to begin with this analysis of the current situation along with a view to where the company is heading. From here, qualified candidates are identified and assessed. Initial candidate identification should be broad-reaching but never compromising. It is always surprising to learn the reasons for people being interested (or not) in a particular opportunity. For example, geography is an important variable in decision making about board opportunities. Board candidates are by definition mid- to senior level executives and often in demand. As such, where board meetings take place can impact their interest. Board meeting dates are another practical consideration. All conversations will cease as soon as a director candidate realises that the potential board meeting dates overlap too much with those of their current board(s).
Once practicalities and logistics are worked through, the real task of assessing qualifications can begin. This should begin with a resume or CV. But this is only the starting point. This paperwork is the baseline for the assessment to begin because basic qualifications need to be met. Above and beyond this is where the real assessment begins and that is with soft skills, style and culture fit. So much of the success of a board candidate and ultimately board director will be because of an appropriate combination of hard skills and experience with a suitable style and appropriate temperament. This is not easy or obvious to assess but definitely critical.
The understanding of style and fit should be obtained not only by interviewing the candidate but by speaking (in private or confidentially) to those that have worked with him or her. Insights such as these can be tricky to obtain but definitely invaluable. The importance of this part of the process can never be underestimated.
The board recruitment process should be multifaceted and thorough. It should involve an array of qualified candidates who go through a multi-step process. The results will bear out that this is critically important. A well-functioning board with strong and committed and contributing members can make a huge difference for any company. And in case you feel that the work is complete once the new board member is nominated, think again, on-boarding and orienting the director is critical to insure that he/she has the tools to succeed and then, of course, on-going education, support and training will help assure the relationship is long-lasting and productive.