Introduction
There are a variety of mechanisms used to select board members. Certain boards elect their members, others rely on a combination of appointed and elected members and many appoint board members. The latter is the focus of this article.
More specifically, it will focus on
- characteristics
- commitment to mandate
- diversity
- limits, and
- who knows who.
Characteristics
When examining the characteristics preferred in board members, one frequently discussed is competency. According to Richard LeBlanc,
Financial regulators in Canada are taking the lead globally in requiring risk and relevant financial industry expertise (OSFI) and rigorous competency assessment of directors (DICO). The CSA began this in 2005. The SEC (citing my work) did so in 2009, requiring full disclosure of incumbent and prospective director qualifications. CSs should track best practices, as they will reach non-financial firms. “Competency” is broader than experience and includes SKEET (skills, knowledge, education, experience, education, training).
Many boards look for specific things in a board member. They want to know the board member’s values, ability to work in a team, and ability to fulfill the roles and responsibilities that will be assigned to him. Conversely, there are boards that choose board members solely based on their connections and leverage ability.
Consequently, it is essential for each board to determine exactly why it is selecting a member and avoid using criteria which are irrelevant to that expectation.
Commitment to Mandate
If a board member accepts an offer to sit on a board but does not have any interest in the board’s mandate, that member may not serve the board well in the long run. He may enhance the status of the board but be unable to assist the board to focus on its mandate and achieve its desired outcomes. Disinterest during meetings can be demoralizing to the other board members.
The key is to ask the prospective board member about his philosophy and ideas about the mandate and make your decision accordingly.
Diversity in the Boardroom
Even though it is clear that most organizations and businesses favour diversity in the boardroom, very few have a diversity policy. I contend that unless there is policy in effect there is unlikely to be any meaningful change. The task of preparing and implementing a diversity policy comes with its own challenges. Simply knowing and acknowledging that diversity is required in the workplace is not enough; there must be a realistic plan which outlines specifically how the desired changes will be realized.
According to the Deloitte Global Centre for Corporate Governance, research published in the report entitled Women in the Boardroom: a Global Perspective – 2011, among Canada’s 500 largest organizations woman hold only 14.4% of all board seats and that is a drastic improvement from previous years. Minorities hold a minuscule 4.6%, disabled persons 2.7% and aboriginal peoples a staggering 1.1%.
This information confirms for boards that if they truly believe in diversity in their boardroom, the time to develop the appropriate strategy is now, before new board members are selected.
Limits
One complaint I hear from board members is that certain individuals remain on the board too long. They become entrenched in their beliefs about the board and the organization and do not seem to know when to leave gracefully. They are not doing any harm but the board could use ‘new blood.’
How does a board ask this person to leave? I suggest that they do not ask the person to leave but review tenure limits when they do their policy review. That way the discussion is overt and no one’s feelings get hurt nor do they feel that their contribution has not been worthwhile.
What are the appropriate time limits for your board? Should a board member be appointed for
- one term only
- one term with the option of re-appointment for one more term, or
- one term with the option of re-appointment for two more terms.
Choose a time limit and stick with it.
Who Knows Who
It is possible to choose board members based on the networks of those currently serving on the board. If this is your board’s method, does it serve your board well? If not, stop and consider how the board could find potential members who are not known to you at the present time.
Do not write off people who do not have experience in governance. Everyone has to start somewhere. Sometime it is best to have a balance of seasoned and inexperienced board members. These individuals will see issues from a fresh perspective and may be able to pin-point issues which were not identified by the current board.
Be open. Look for people who will constructively challenge the board’s thinking and bring new insights to the table. Do not necessarily look first to people who have been CEOs. A point worth noting was made in an article by Richard LeBlanc when he wrote that the notion that CEOs make better directors is unsupported by empirical evidence.
Therefore, when choosing new board members know what you need and find ways to search for individuals with those characteristics who belief in your company or your mandate.
Read more about diversity in the boardroom.
