We tell our clients that attracting an ideal mix of Directors is half the battle – but only half…
Talk to any Board Governance Committee and they will gladly describe their spreadsheets listing the knowledge areas and skills they target in their Board recruitment program. These popular matrices plot the strengths and gaps on the current Board, along with the timing of likely retirements. Most then highlight which new types of talent the Board will pursue in future rounds of Director succession.
In one step, this tool made possible one of the most powerful governance changes in a generation. Boards are now able to discard the old practice of fishing from a pool of best friends. They give new importance to merit and expertise as prime selection criteria. They align their capacities with the emerging strategic directions and choices of the business.
No question, this big leap forward in governance should be celebrated. Yet, the basic formula is giving way to a much more complex algorithm. Indeed, to many Boards today, the functional skills referred to are just a starting point for their process. They also know that – for all its simplicity – it is becoming much harder to implement the matrix. Why? Consider the emerging environment for Director selection.
First, Boards are getting smaller. In all but the largest firms, Directors prefer an 8 to 10-person Board, even if many retain two or three more seats at the table than that. Having seen the gains from past reductions, they call out for more. Small numbers reinforce decision-making agility and permit trust and collegiality to flourish. These are benefits that matter.
Nonetheless, Boards are now pressed by regulators and investors to enlist experts in a wider range of subjects to keep up with growing business complexity. On top of related industry knowledge and financial reporting, Boards now seek out those with deep experience in, e.g.:
- Global markets and marketing
- Risk management
- Senior executive compensation
- Regulation, government relations and public affairs
- Technology, the environment, and more
Shortly, we will describe the troubles that a Board of specialists can fall prey to. For now, just note how tricky it becomes to meet the burgeoning demands of a multi-skills Board, while keeping numbers low.
The challenge goes deeper still. Many Boards are in hot pursuit of more diverse thinking, yet (rightly) reject any formal demographic targets. This choice makes measurement highly subjective. It is easier to add up 30% women or 20% minorities than to track how much Board insights have broadened. Of all the duties of Directors, it is in selecting their successors where they most need to challenge themselves. ‘Have we opened ourselves to new ideas or just reinforced group-think?’
At the outset, we said that the skills matrix tool that Boards apply to new member selection is widely supported. Even so, leading Board builders find that they must mix and match many more factors in crafting a Board able to perform at high levels. Judgement and a kind of alchemy must combine in equal measure, if Boards are to renew their composition – and still thrive.
In building Boards, we must take into account many paradoxes and seeming contradictions
The fine arts of Director recruitment and Board-building are complex, subtle activities that must take into account many paradoxes and seeming contradictions:
- We recruit for a role we call ‘Director’, yet we do not want people who will come with the intention of ‘directing’ (let alone substituting for) top Management
- We value Board members who have been where the CEO is now, driving business decision-making, yet who can switch into an advisory style with ease
- We prefer Directors well able to ‘fit’ within a Board’s culture, yet who do not need to conform, and who, if need be, will have the courage to stand on their own
- We want deep expertise so the Board keeps up with Management on complex matters, yet must avoid narrow specialists who cannot contribute outside their chosen fields
- We aim to recruit a diverse mix of personalities, experiences and points of view, yet who will unite to become a close-knit, integrated, high-trust team
Board composition and capability – art, science, or…?
Many Boards tell us they face a surge of retirements. As their task goes beyond replacing 1-2 members per year, larger changes to a Board’s culture and capability are inevitable. They must weigh and trade off:
- Leadership: Are strong successors in place for their Committee and Board Chairs? Are they seeking out candidates that offer that potential?
- Courage and Confidence: Directors most respect colleagues who blend unconventional thinking with the courage to speak against the prevailing tide and the persuasive powers to bring others onside
- Fit with top management: In which disciplines could the Board add most insight to complement the CEO’s other strengths? Will the CEO see these candidates as true peers to learn from?
- Team strengths: Can these Directors contribute to the whole Board’s thinking? Do they develop trust in others and earn trust in return? Can they get behind the full Board’s decision, even if they differ?
- Diversity of thinking: Which kinds of diversity matter most will depend on the Board. Some lack exposure to other geographies, markets, or sectors. Others stress the personal styles of contrarian, analytic or strategic thinkers. Will the new recruits bring the insights this Board most needs? Can they help the Board learn and benefit from their differences? Can they build unity out of diversity?
We do not support turning a generalist Board into a collection of specialists. As Boards grow smaller, specialists in marketing, HR, or Asia will earn their keep only if they can integrate their thinking with that of the whole Board, rising above their specialty to become ‘holistic’ Directors. We are intrigued by how often Board MVPs are those who combine a general management outlook with an ability to build shared meaning from the insights and specialties of others.
Nor do we stress picking leaders from the same industry. One CEO in the infrastructure sector told us:
“The last thing I want is a bunch of old construction guys!” Boards known for adding new value bring insights from different but similar businesses. They know enough to challenge conventional thinking and inject bright ideas from ‘outside the firm’s bubble’, but they do not know so much that they delve too deep into management territory.
Board capability is more than composition:
We tell our clients that masterful composition – attracting an ideal mix of new Directors – is half the battle, but only half. Fulfilling that potential is the other half. How can they engage the new cohort and fuse it with the best of the current Board? Boards can draw on many methods, e.g.:
- Individual expectations: Board Chairs can convey to each Director what special strengths motivated their initial selection and what distinctive future contributions will be especially valued by the Board
- Intensive new member integration: This goes beyond ‘orientation’ to accelerate the ability of new Directors to get up to speed and bring their full capacities to bear
- Director development: In most cases, Directors can no longer rely on a general grasp of their industry. Some Boards transfer a stream of industry knowledge and trends to Directors and senior Managers alike. A larger Board goal is to foster a common language and depth of business understanding for all its members
- Renewing Board culture: As new Directors settle in, a Board can open itself to rethinking its behaviours, values and practices, to combine the best of its legacy with the fresh perspectives it has now recruited
In this way, the work of renewal is incomplete until the new recruits become insiders and their diverse viewpoints help to shape the new Board. Ideally, such a change takes place deliberately, over several years. The advantage will go to Boards that start their engines well in advance.