With scrutiny of corporate actions greater than ever, the role of a board of directors has changed from that of a rubber-stamp squad made up of a closed circle of friends to a group of independent directors.
Board members are expected to take more responsibility than in the past, and the smart CEO taps their knowledge to help guide the company to better returns. But where do you find an experienced person to serve on your board?
“A lot of it is networking,” says Kevin Schaffner, assurance partner for the Cleveland office of Grant Thornton. “Each person on the board has their own networks to tap into. They can identify candidates that will bring the skill set that is needed either currently or in the future.”
A board should perform a self-assessment before the search begins.
“Take a look at your current situation,” says Schaffner. “Where are you strong and where are you weak? Look at your existing needs and those of the foreseeable future as the company changes.”
The assessment can take into account nothing but skill sets needed or it can be more complex.
“There are legal requirements of having financial expertise on the board, and boards are always on the alert for someone that can bring financial expertise to the table,” says Schaffner. “They might need someone with HR, legal or manufacturing experience. You can look at it as broadly as that, or look at male vs. female or along ethnic and racial lines.
“Diversity is very important. You always want different perspectives. It’s good to hear different viewpoints. You may be in manufacturing, but the experiences of someone familiar with manufacturing in a different part of the country or with a different product may see things differently than you do. You want the board to be conversant in your industry.”
Independence is the watchword for boards today.
“There was a time when many boards were interconnected,” says Schaffner. “They were all from smaller networks. Today, that’s looked at very closely. People are looking to expand their horizons beyond those closed networks. Independence is valued in a board now, not just for the audit committee.
“It places a lot of responsibility on the nominating committee. They have got to expand their networks. It may not be somebody the nominating committee knows. It may be a contact of one of their friends that has the right skill sets.”
Once potential candidates are identified, the process follows a normal job interview workflow. The committee will narrow the candidates down to a final two or three people who will be presented to the board as a whole. The board will consider the qualifications of each candidate, and at some point meet with them in person before deciding who will be the best fit.
Different boards take on varying roles of responsibility depending on the company, but a board has to perform its oversight role regardless of the CEO’s opinion.
“As a board, you have to make sure management is one of integrity,” says Schaffner. “You want to see honest and moral and ethical values. Is management giving you the whole story? Does management respond in a respectful manner, or a very defensive manner?
“You don’t want to be abused as a board member when you raise ideas. There has got to be mutual respect.” How to reach: Grant Thornton, (216) 771-1400
Building with strong boards
Regardless of whether you run a public company or a private one, a strong board can help you make the right decisions to guide your business through good times and bad.
“If you recruit the right people to be on the board, you have recruited very talented and informed people,” says Kevin Schaffner, assurance partner for Grant Thornton. “To not utilize them as a sounding board and not take advantage of the knowledge sitting with you at meetings would be unfortunate. A CEO may have in mind a course of action they think is right, but they can utilize the board to validate or enhance their viewpoint on the subject matter.”
A strong board can help a CEO feel more confident about his or her decisions.
“Being CEO can be a lonely place,” says Schaffner. “You are making decisions and, it’s helpful to have a sounding board to bounce ideas off of. The old saying of ‘Two minds are better than one’ is very true. An effective CEO will take advantage of the talent around them, whether it’s from their own management team or from the board itself.
“A change is underway for companies to build a more independent board. CEOs are saying, ‘OK, let’s take advantage of that and surround us with talent and build a rock-solid board.’”