By Jennifer T. Naylor
In this post, I’ll talk about the parameters for director recruitment with the idea that human resource professionals can and should support the board and CEO in sourcing prospective board members – also asserting that this is a good year to recruit board members with expertise in human capital. Ultimately, what you learn in the process of supporting your company’s board search can help you – should you desire – position yourself for board service.
Despite all the attention on board inclusivity, many directors are still selected from the CEO’s friend group or professional associations; or placed by private equity investors to protect their investment. Both tend to be bad choices for good governance. For proof, recall business headlines of 2017 – 18: they were replete with examples of boards that didn’t challenge their CEO’s bad behavior (Uber, Tesla, Nissan, SoFI), ethical malfeasance (Wells Fargo, Zenefits, Theranos, Volkswagon) or bad business practices (Facebook, Google, Deutsche Bank). When a company suffers a crisis, fingers often point accusingly toward a board that didn’t challenge the leadership or wasn’t paying attention.
Companies that are governed well make more money. That’s why the largest institutional investors such as Black Rock make a big deal about good governance: they manage a lot of money, and they want to make more money. And so when Black Rock lays out best practices in governance, pay attention. When they talk about who should be on the company board, the candidates are not:
– a friend or relative of the CEO;
– anyone sitting on three or more corporate boards;
– anyone not a subject matter expert in the Company’s customers / market, strategic imperatives or risk profile.
While these basic directives seem like easily applicable guidelines, they are routinely flouted. All. The. Time. It’s worth remembering why each one of these characteristics is important by looking at the board’s responsibilities.
The board does not operate companies; its job is not business development. Instead, boards are in place to ensure the viability of the corporate entity on behalf of all shareholders and stakeholders (emphasis on ALL).
It is responsible for hiring and firing the CEO: for that reason, directors need a good working but arm’s length relationship to the CEO. A familial or friend relationship could impair this important business imperative. Any prospective director must have the courage to see through difficult business decisions, and this is one of the most difficult situations that any Board will confront.
Second, boards work with management to evaluate strategy and then hold leadership accountable for its implementation. Together with the Board’s other responsibilities, this role is time consuming, demanding some 300 hours per year per board; more hours if the company is in any kind of a crisis or financial situation. Being “overboarded” while maintaining a full time job or other responsibilities means not being able to adequately meet this commitment.
And lastly, the Board is an advisory and oversight body to the CEO and corporate leaders: directors need requisite expertise to be effective on behalf of shareholders and to fulfill their duty of care responsibilities to the entity. Being a smart person is not enough to ensure satisfactory fulfillment of this responsibility: being a subject matter expert in the company’s key customers, strategic imperatives or enterprise risk is a qualifier.
Most boards develop a competency matrix for current and prospective directors to maintain a stable of functional expertise that is aligned with the companies mid to long-term strategic priorities. Human resource leaders can provide valuable assistance in translating the competency matrix for prospective directors into robust candidate profiles to guide the scouting and recruiting efforts; and given the extensive networks developed over years of recruiting, human resource executives can help to source candidates.
While many external executive recruiters turn instantly to former chief executives in a board search, these are not necessarily the best candidates, and many boards are more comfortable appointing non C-Suite executives. Research is concluding that more diverse boards deliver higher levels of financial return and greater efficacy overall and, consequently, institutional investors are clamoring for inclusivity and deeper operational experience on boards, something that CEOs often don’t have.
Further, as I have argued before, human capital management experience is a skill often left out of board competency matrices; and it shouldn’t be. Without human capital discussions, board debates on strategy will not be able to answer key questions on talent alignment, training, retention and alignment. Having an HR leader on the Board who is not beholden to the CEO will greatly advance the board-level understanding of the organization’s human capital. And lead on other key board responsibilities such as compensation and succession planning.
As you position yourself to support the CEO and the board in recruiting talent, use the experience and insight you gain to position yourself for a board invitation, by building your network as you source talent. Learn as much as you can about the demands of corporate governance and the non-executive director’s role. Pay attention to how candidates position themselves for the director role from the board bio to the interview positioning. Lastly, see what role you can play in onboarding new directors: that perspective will help speed your own onboarding when the time comes.