Industry Insights
"Strategy is the first imperative-
but it’s frequently de-emphasized...”
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With the thanks of the Chair, that last, long-serving friend-of-a-well-connected-friend is finally leaving the board of directors and a replacement must be found.
Increasingly, there’s a realization — and a genuine resolve — that new board members had better bring more to the table than those departing good-old-friends ever did.
“That resolve is a very good thing, so long as the whole process isn’t driven by regulatory shock,” says Mike Ross, leader of the global Board Search practice group of IIC Partners. “That’s where professional counsel can help.”
Regulatory guidance worldwide emphasizes the reality that non-executive directors must be incontestably independent and deeply qualified. And these new laws establish new standards of board responsibility and liability.
In this new environment, CEOs and boards of directors are scrambling to find the qualified and independent directors they need — but Ross says they shouldn’t lose sight of the bigger picture.
“Strategy is the first imperative — yet it’s frequently de-emphasized as companies become mesmerized by all the new legal requirements,” Ross says. “The board needs to start with a clear picture of the ideal director; one who will provide needed talents and independence but also bring new business or geographical connections, new technical or cultural perspectives and new insights into risk management, while at the same time fitting well within the chemistry of the existing group.
“A credible search firm will identify these opportunities up front.
“Issues of strategy, transparency, quality, liability and availability all argue strongly that companies retain experienced search firms to conduct credible, effective and successful non-executive board searches,” Ross says.
“Once strategic issues have been factored in, transparency is the next consideration,” Ross says. “Historically, the vast majority of board opportunities evolved from the old-boys-network. But the do-it-yourself director search, driven from the Rolodex of the chief executive officer, will no longer pass the smell test — much less legal requirements. And we all know of very high-profile court cases where this point is currently being made.
“By comparison,” he says, “the organization that uses a search firm is positioned to answer any challenge to the validity and thoroughness of the process.” The search firm keeps records of the position requirements, people considered, their qualifications and the reasons for the final selection.
Quality requirements also convince more and more companies to contract board search assignments, he says. For certain board roles, specific competencies are required and search firms are better equipped to track down, assess and confirm credentials than an internal board committee.
Ross says increasingly higher director liability standards — and associated time commitments — have meant that some excellent candidates have removed themselves from consideration for board roles while others have carefully limited the numbers and types of board appointments they accept.
“Availability becomes a real issue. There’s just a greater level of competition for a smaller pool of qualified people, so professional search services increase your chances of success and reduce the time a board position may have to stay vacant. Search firms are constantly in the market and consequently cast a much wider net,” he says. Top-quality candidates are also becoming less available because they’re increasingly determined to serve only on boards with others of their own stature — because of liability issues, networking opportunities and concerns around reputation, image and career development.
Equally importantly, strong candidates have come to expect serious offers will be made through search professionals, and they’re inclined to look less favourably on other approaches.
The requirements of discretion and protocol also mitigate in favor of the professional search, says Michaël Berglund, a senior member of the IIC Partners Board Practice Group from Stockholm.
“At the Board of Directors level, the candidate wants to feel he or she is being targeted for the position versus being part of a large pool of candidates,” Berglund says. Only one person can be approached at any one time. Potential board members must be precisely ranked by very discrete research before the preferred person is identified and approached.
“Obviously, researching and ranking candidates in this fashion is something a board search practice is in the habit of doing and others just aren’t.”
Ross says two considerations are key — the independence of the search process and the independence of the Director who is ultimately named to the board.
“Today’s best-run companies need to know that a new board member can add value and will be willing to do so.”
Mike Ross is the Board Search Practice Leader for IIC Partners and a Managing Partner with Conroy Ross Partners in Calgary, Canada. |
