Building the Right Board for the Times
Assembling the perfect board requires that directors undertake a periodic look at whether their composition is indeed in balance.
The best boards are capable of responding to all crises, not just the crisis of the moment. Yet the crisis of the moment tends to figure prominently when corporations evaluate board needs and recruit new directors. Financial services companies, for example, are currently seeking risk-management professionals for their boards, as they attempt to avoid the fallout from the subprime meltdown. Similarly, in the wake of the Sarbanes-Oxley Act of 2002, corporations have sought to bring more accounting standards and financial expertise into the boardroom.
These trends are not negative ones. Seeking an individual with a strong accounting and financial background to lead the board's audit committee, for example, is truly in the company's best interest. Yet the placement of these expert specialists on boards should not be allowed to create an imbalance in overall board composition or to lead boards to focus to an inappropriate degree on short-term priorities. After all, a board's most important mission in good times and bad includes taking an active role in promoting leadership succession planning and along with it, long-term stability and growth.
What constitutes the right mix on a board of directors? The ideal collection of directors will offer diversity not only in gender and ethnicity, but also in skills and expertise. Moreover, the directors' skills should mesh with the corporation's needs and opportunities. For instance, companies with active operations or sales in India might benefit from the guidance of a director with first-hand experience in that region, whether the person is a native of India or an executive with on-the-ground business experience there.
Today, we have to learn how potential candidates might operate under pressure or during periods of economic downturn. Can they interact smoothly with the CEO, management, and shareholders? Can they handle activist investors and the rule makers at the Securities and Exchange Commission? More than ever, a director needs to be poised and articulate. The easiest way to assess whether they have the communication skills needed is to review what they've been through in the past—to gauge whether they have meaningful "scars."
The goal, ultimately, is to identify and access good judgment: the ability to understand complex situations and make wise decisions under adverse circumstances. Now, if the candidate is the former CEO of a public company, chances are he or she will look good on paper. But corporations and their search partners will want to learn how potential board members behave. Are they autocratic in the boardroom? Do they build consensus? Was there a crisis during their tenure? How did they handle it?
Savvy boards know that the best type of crisis preparation is one with a longer-term orientation: staying the course with the right CEO, when that is appropriate, and planning ahead for effective leadership succession, hopefully with the luxury of a longer-term perspective.
As an executive recruiter specializing in boardroom searches, I want to present as much information as possible on a candidate so that a company can make the best choice. As I like to say, you really need to "spend time on the playground" to conduct a thorough assessment.