Chief Executive Officer & Board of Directors
In the past, directors were viewed primarily as advisors to the chief executive officer. They frequently had business or personal ties to the CEO or other members of the board, and they were often chosen to add the luster of a well known name. But a high public profile and a golf-course friendship with the CEO are no longer sufficient qualifications.
As The Conference Board’s Global Corporate Governance Research Center emphasizes in a special report on best practices, the directors’ new role requires that “they provide active oversight of the company’s business to minimize corporate risk and promote the creation of shareholder value. The new challenge for boards will be to go beyond their traditional advisory role and increasingly focus on their oversight role. As fiduciaries, boards must be active monitors of management.”
Today, directors must add real value to the corporation and to its shareholders. These changing times require nominating committees and CEOs to ask hard, fundamental questions about their own boards: Is every director qualified to perform the critical oversight function? Does each director truly understand the business today? Do the skills and experiences of our directors meet the specific strategic needs of the company?
Strategic, financial and operating acumen are necessities for each board member. Collectively, the board should possess a blend of skills tailored to the company’s business needs and goals. And no matter what the director’s background, a proven reputation and a track record of excellence in his or her field are essential.
Board nominating committees must evaluate director candidates not only on the basis of their experience, but also their personal character. Ideal board members are pragmatic, strategic and tough-minded. They are willing and able to offer critical review, and are adept at giving direct guidance and feedback. Strong directors speak their minds, but they also have a real sense of partnership and of working together toward a common goal. The nominating committee should ask itself whether this candidate is deeply interested in making a meaningful contribution to the company.
Rigorous best-in-class assessment
Every board today should undertake a thorough and objective assessment to determine the competencies and behaviors of each board member and of the group as a whole. The goal is to identify areas where the board can improve to bring its performance up to a best-in-class level. It is a fairly rigorous exercise, but the best way to determine board effectiveness is to understand how the board works – and how it might work better.
Armed with this knowledge, nominating committees will be able to thoughtfully select new directors at the appropriate time.
Assessing a nominee’s stature, skill set, depth of experience, wisdom, reputation, values and passion is only half the battle. The other half is time. Perfect attendance at full board meetings is a formidable commitment, even before allowing time for preparation, committee meetings, facility visits, training sessions and travel to and from those activities. The time demands inevitably reduce the pool of willing and able candidates.
The increasing obligations of board service make it tougher than ever to recruit qualified directors. In addition, in the face of fierce public scrutiny and questions of potential liability, willing and qualified director candidates are growing ever more selective about the opportunities that they will entertain.
Sitting CEOs have traditionally been the most sought-after board candidates, but looking elsewhere expands the pool of potential candidates. Presidents, chief operating officers, chief financial officers and heads of large operating units can bring skills, passion and fresh perspective to the boardroom. Attracting great directors of this caliber is easier once they understand how much they stand to gain from serving on an outside board – the learning experience and the exposure will be invaluable in their own career development. Of course, mentoring and director education are essential for first-time directors.