By Stan Krejci
There has been a radical change in the way in which companies find members for their boards of directors. More and more companies are using search consultants to identify and vet potential candidates.
Why? One reason is to be able to address the issue of independence, a critical factor in the selection process.
With a history of headline grabbing board of director issues that emanated from the Enron and MCI-World debacles, companies have spent considerable time in examining all aspects of corporate governance, particularly if publicly traded companies. Aggressive stakeholders and a highly litigious government beg the issue of strong, independent board members who provide quality- independent- advice to corporate management.
The days of "family and friend" referrals from the company law and audit firms as well as interlocking directorships are over. A corporate board needs to be composed of the "best and the brightest" members who bring years of experience, entrepreneurial energy, and industry and job responsibility expertise. It is important to identify board members who will help create a well-rounded board in terms of depth of knowledge of the company's product or service and will representative of the company's marketplace. Board members also need to ensure that the governance of the company is completely transparent to stakeholders and employees alike. This means that information about the company and its executives and board is readily accessible to the public and that the chief executive officer of the company is prepared to openly discuss operating and management direction, strategies - where appropriate - and issues with employees, stakeholders, and even the press.
While there is a cost associated with using a search consultant to conduct board searches for independent board members, that cost is minimal compared to the cost of litigation should that ever arise. The expense is really an investment in a company's stature as a well-run business that will positively affect its long-term viability.
What would an ideal search process entail? Following a meeting with the company chair or the chair of the board nominating committee, a gap analysis would be undertaken to determine what strengths need to be added to the board. For example, does the board need a member whose background is in marketing communications, finance, or technology?
Once the gap analysis is completed, a detailed discussion of other characteristics of board candidacy is paramount. For example, what leadership and management experience is required? Has the candidate built a successful business? How big is/was that business in terms of revenue? Is the board collegial? Personality factors are critically important.
How should issues of racial and gender diversity be introduced? What is the compensation? What will be expected of the board member? How will the board member be measured in terms of individual contribution to the board and the company's strategic growth?
With all that information in hand, the search consultant can begin searching for three to five candidates for each of the new or vacant board seats, candidates who are independent of the business in terms of previous business relationships. In-depth candidate conversations and vetting are important to the process. Due diligence in the board world is now a two-way street.
Ultimately, the candidates are interviewed by the company chair or the chair of the nominating committee. The final decision rests with the company as to whom they select.
The end result is a team of independent directors who are highly talented and eager to collectively work with the company's leadership to ensure the company's long-term success. Companies that follow this route find that the board becomes a tremendous resource in navigating a wide range of issues. The rubber-stamping board is replaced by a dynamic, experienced, and sophisticated team if advisors who help company leadership develop and execute strategies that enable the business to reach new heights.