Solving the Board Puzzle: How to Select the 'Right' Directors

Article excerpt

Choosing directors is a delicate operation. A wrong move can jeopardize both the board's effectiveness and the company's success. Here's one CEO's process for selection.

During a CEO's tenure, he or she will make countless decisions that affect the company for decades to come-and influence many more. One of the most important and far-reaching is the selection of board directors. This process is as much an art as a science. But it takes a great deal of homework before the intuitive part kicks in.

Complicating the matter, the demand for qualified directors is now greater than the supply. The reasons are many: CEOs of major corporations often have grueling schedules that limit the number of outside commitments they can take on; litigation risks abound, particularly in industries in which product liability is a factor; and deregulation and consolidation have increased the potential for conflicts of interest.

Executive search firms, some of which specialize in board of directors positions, can do much of the initial legwork and screening. They will, for instance, screen out candidates for whom there could be a conflict of interest. With the blurring of distinctions between and among financial institutions-banks and insurance companies, for example-the potential conflicts are not only more frequent, but less obvious.

Key assistance, however, can and should come from your board's nominating or corporate governance committee. This committee, composed of outside directors only, is your sounding board and reality check. Guidance from these directors is as valuable as their support is necessary. In fact, in many companies today, these committees operate independently in selecting new candidates for the board and only then refer them to the chairman and full board for approval. But I feel it's the CEO's obligation to be active early in the process; that it makes more sense to have input beforehand than to veto a selection afterward.

Regardless of who does the initial search, it ultimately comes down to oldfashioned decision making-assimilating the research, references, and recommendations; interviewing the candidates; and presenting the choice or choices to the full board for approval. If you and the nominating committee have been diligent and agree on the candidate(s), you most likely will receive that approval.

CHARACTER ANALYSIS

So what do you look for in a board director? The personal qualities you seek are timeless-strength of character, integrity, intellect, business sense, sound judgment, and good nature. The book of experience you require, however, may well vary with the times. Do you want a man or woman with a marketing background, or one versed in finance? In a time of expansion, you may benefit most from someone with a global orientation; in a time of retrenchment, you may want one who has had experience in downsizing.

Your current directors' areas of expertise are often critical to your selection of a new board member. Balance is an important factor. Have 15 engineers on your board, and you may wind up with terrific products-sitting in your warehouse. Have 15 directors with marketing experience, and you could sell ice in Alaska-if only someone knew the formula for making it.

The question of diversity almost always arises in the selection process and is one that makes some people uneasy. Frankly, no one should be elected to any board of directors simply because of their race, gender, ethnicity, or religion. But any CEO who has 15 people seated around a board table exactly like him or her will be led down the garden path sooner or later. In effect, you wind up talking to yourself. The strongest and most effective boards are those with dimension and a variety of relevant perspectives. …