RECRUITING BOARD MEMBERS
Best practices for safe recruitment – Ralph Ward and Dr. Muneer Muhamed
We have discovered that the most popular cliché about corporate governance is how this trend or that idea will lead to its reinvention. However, this has not happened – and we wonder if it ever will! This is quite obvious, given how often our current models fail.
What if we were to start reinventing corporate governance with the one aspect that has seen the most recent attention – board recruiting?
It may be uncomfortable for directors worldwide to admit that how we find, train and utilise corporate board members is useless. The lack of diversity in boardrooms has drawn sharp criticism amid a rising tide of quota and disclosure reforms.
And that is only one of the board recruitment flaws we need to address.
Today’s boards need leaders with the ability to see around corners. When appointing a new member to a board, he or she ought not to be friends of the promoter or buddies of existing directors. Choosing independent board members is important since they represent the interests of minority shareholders.
It’s not about doing background checks on potential candidates. That is easy. Tighter regulations, activist investors and the ‘always online’ culture mean that a board prospect’s history (both positive and negative) is common knowledge. Due diligence on potential directors has tightened, and become more professional and systematic.
Here are some trend-setting ways to select your board members today, and avoid boardroom embarrassments tomorrow!
The central concerns for board nominees are similar to those of executive hires today: criminal history of course, as well as civil issues. Has the nominee been involved in personal or business bankruptcy? Is there any lawsuit history both as a plaintiff and defendant? Are there personal violations such as domestic violence, sexual offences, drunk driving or drug abuse; or any current or past restraining orders, or other mandated limits?
Trusted personal referrals are no longer sufficient. Many other personal references no longer work. A decade ago, a candidate would be chosen on the basis of a referral by the company’s investment banker or private equity firm, and that was good enough then… but not anymore.
There are far too many skeletons hidden away these days.
One of the hottest areas for verification now is a buffed up career and/or academic history. It’s surprising how many people lie about their credentials.
The older an item is, the easier it becomes generally to transform a few courses taken into a degree or buff up a job title. If such anomalies are found, weigh how serious they are, as well as the motives behind these and their potential consequences.
These days, due diligence extends beyond such fact checking into the prospect’s overall public image. One’s digital persona is also important but very few CEOs manage it well.
For instance, people can place themselves in a compromising position by not posting appropriately on their personal Facebook pages. They can get fired more often than ever before because of errant social media posts. What was posted five or 10 years ago can be destructive now.
Take a deep dive online now, for what the candidate has said (as well as what has been said about him or her) on the basis that someone with hostile intent will take the same dive later. This includes the candidate’s other business and board engagements, which can also uncover vulnerabilities.
Inappropriate behaviour can become a hot item in the hands of activists or competitors. How will it look to have a board member who had manipulated (read bribed) governments to be seen in an enterprise that has high ethical values?
Check for political, social or legal controversies too.
The logistics of board background checks are becoming more professional. As boards move beyond personal references, they have typically tapped legal firms to dig into the past of candidates. We naturally encourage such outside specialists to do due diligence.
An advantage is that a professional intelligence firm will most likely have licensed private investigators who can gain access to legal and other records that amateurs can’t.
Candidates are increasingly accepting the need for due diligence and willing to sign any approvals needed for access to their information. However, your own internal politics may create issues.
For instance, if a private equity firm names a candidate to a company’s board, it can take the view that if they’re good enough for the firm, they’re good enough for you. So seek assurance that such candidates have already been carefully vetted.
And with all the resources available to track information today, the danger of compiling a massive data dump of everything imaginable on a candidate (most of it simply background noise) is real.
So start with your governance and nominating committee, and lay out parameters on what needs to be known and the main factors that go into making a final decision.