The Candidate’s Perspective of a “Healthy” Board: What Makes Boards Effective?

Melissa Henderson February 20, 2019
Board Member Recruitment | Summit Executive Resources

Not all boards are great boards and great candidates just don’t want to be on any board. Just last week I shared my thoughts on Three Steps to Greater Board Effectiveness, with a view from how the market views boards as well as my own perspective. However, what about the candidate’s perspective?  Are all boards great boards and which ones should they most aspire to serve?

As I created our board practice over five years ago with our very first client, Lou Testoni, I collaborated with him on defining the candidate’s perspective of a “healthy” board.  Through this exercise, we discovered how all boards are not created equal and established a “candidate’s board of directors scorecard”.  As corporate boards are conducting their own process and due diligence of board candidates, executives who are seeking independent directorships should be doing their own due diligence.   Following are excerpts from our “candidate’s board of directors scorecard” –

 

Board Governance

It is important to know whether the company has a formal corporate governance policy. Identify who their audit partner is and any insight into the company’s relationship with the audit partner.  Also, identify who the Chief Risk Officer is and research their background. Gather an understanding of how the company defines corporate risk and their track record of mitigating risk.  Other questions to consider include –

  • Is there a formal policy document that defines the standards and procedures for the qualification, duties, nomination and selection of board directors?
  • What are the qualifications of the Chairperson of the board and his/her independence?
  • What is the Chairperson’s educational and industry background?
  • The Chairperson’s other board leadership roles and networking skills?
  • Is the CEO also the Chairperson and what kind of conflict does that create?
  • Are the board members fully aware of their legal and ethical duties?

 

Board Composition

I find that many first-time board candidates struggle with understand the optimal size of a board. The average number of most boards is nine members, however they can range from three members to well over twenty, which is largely dependent on the company’s size. In my opinion, it is ideal that the board weighs to a heavier percentage of outsiders than insiders and ideally somewhere over 60%.  It is important to consider how the size and geographic location helps or limits board communications.  Additional questions include –

  • What knowledge, qualifications and skillsets does each member bring to the board?
  • Does the board have the right skillset, decision making process and tools?
  • What value added networks do they bring to the board?
  • Where else are the independent members spending their time, such has other committees, boards?
  • What is the diversity of the board – in independence, gender and expertise?

 

Board Culture

I spoke about board assessment in an earlier post. It is important to know whether the board assesses their own performance on a regular basis and how formal this process truly is.   The board must ensure their effectiveness and alignment with the long-term interests of shareholders. Other considerations include –

  • Are the interests of the board members aligned with the shareholders and the CEO?
  • Has the board conducted self-assessments?
  • Does the board have the power, knowledge and tools to conduct a comprehensive and fair CEO assessment?
  • How often and effectively does the board communicate with investors, the CEO and the executive team?
  • What is the communication style – active, passive, political or cooperative?
  • When and how often does the board meet, keeping in mind conflicting dates or a board that is too scattered to be effective?

 

This only scratches the surface of the elements of “healthy boards” with a top-line view of governance, composition and culture. In addition to the initial points shared above, I encourage you to gather historical perspective on the potential company – from recent news articles, financial statements and other research.  You may find where there are restatements, trauma, liabilities or litigation.  There are relevant dimensions such as human resources development, knowledge management, risk, stakeholder relations and corporate governance to consider.  It is critical to get an initial view into the board’s audit, governance, nominating and compensation committees as well.

My experience, along with our clients, has been that the first board appointment is the most difficult to attain. It sets the tone for other board opportunities and a potential portfolio of boards to serve on.  With a quality first board, the platform for success is established.  It should not be taken lightly.  Remember…all boards are not necessarily great boards!

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