How is your director succession planning working out and do you have the right board recruiting practices for you and your board? If you have some upcoming vacancies, it’s likely that recruitment efforts are already well underway.
It’s typical for boards to charge a Nominating (or Nominating and Governance) Committee with responsibility for identifying and vetting prospective candidates, and recruiting those whose qualities best align with the board’s and organization’s current and future needs. This requires a firm grasp of challenges as well as opportunities on the organization’s horizon.
In updating the board succession plan and board matrix, the Nominating committee will turn its lens to leadership succession planning. This involves a review of board leadership roles, and frank discussion of any anticipated changes within senior management. Any significant changes at the C-level may have near-term impacts on the stewardship and expertise required of the board, and therefore board composition.
Nor can the committee be satisfied with its grasp, however firm, of the types of expertise traditionally required of boards. Before the Nominating Committee begins recruiting and identifying nominees for the board’s consideration, it needs to ensure that the board’s matrix and its recruitment efforts reflect governance for the 2020s.
How Boards Can Maximize the Board Recruiting Process
Boards and their nominating committees have long recruited on the basis of audit, financial, HR, legal and traditional risk management competencies as well as senior executive experience. Increasingly, the scope has expanded to include experience and strategic insights related to artificial intelligence (AI), cybersecurity, communications/social media, environmental, social and corporate governance (ESG) and more. Boards are also being encouraged to recruit on the basis of additional diversities.
While diversity is of course not restricted to gender, some – primarily European – jurisdictions have mandated exactly that. Last year, California became the first US state to enact what’s known as its Women on Boards legislation. Senate Bill No. 826, approved by then-Governor Jerry Brown in September 2018, requires that “… a domestic general corporation or foreign corporation that is a publicly held corporation, as defined, whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California” will have, by the end of 2019, at least one female member on its board of directors. As of August 2019, there are reports of a court challenge to this legislation, which stipulates further increases in gender diversity by 2021 for US stock exchange-listed companies with California headquarters and boards with five or more directors.
Even when a Nominating committee is well informed as to the expanded scope of recruitment criteria, this is not a minor undertaking. Traditionally, while some boards rely on consulting firms or legislated authorities to identify prospective nominees, directors have also turned to one another and their respective networks as one means of sourcing candidates. This latter approach can serve boards nicely when seeking candidates with expertise that corresponds with that of outgoing directors, but the well may run dry when turning to inner circles to seek out candidates with dissimilar experience and insights.
Whether seeking to recruit candidates whose expertise parallels that of outgoing directors, or next gen directors with skill sets that may be foreign to incumbent directors, nominating committees want to be efficient. It can be beneficial, for example, for the committee to learn early in its search and recruitment process whether given candidates’ nominations could represent a director interlock. An interlocking relationship is what you have when two or more directors of a given organization also serve alongside one another on another organization’s board.
North of the 49th parallel, the Canadian Coalition for Good Governance (CCGG) has established guidelines to support the independence and accountability that are critical to effective boards. The CCGG has recommended establishment of publicly disclosed board policies limiting the number of board and committee director interlocks. It also recommends clear reporting to shareholders of all board and committee interlocks.
In the US, if your board recruited a director who simultaneously served as a director or officer of a competing corporation, the corporation could potentially be in violation of the Clayton Antitrust Act (the Clayton Act) of 1914. With certain exemptions, if both corporations are engaged in commerce with surpluses, capital, and profits exceeding thresholds that the Federal Trade Commission (FTC) reviews annually, that could represent a prohibited interlocking directorate. Rather than learning midway through a recruitment undertaking that appointment of a given candidate would represent a director interlock, wouldn’t it be helpful to be able to have access to such information early in the process?
It’s been 12 years since the UK’s Clive Humby OBE observed, “Data is the new oil.” More recently, executive advisor and AI.2021 board chair Peter Sondegaard put it this way: “Information is the oil of the 21st century, and analytics is the combustion engine.”
What Technology Can Improve Board Recruiting Practices
Diligent Nominations can provide you and your board with both the oil and the engine, through succession planning-friendly information and analytics. With Diligent’s Nominations & Governance app, your committee can access data from across 24 global markets and 40 indexes. This can net you and your Nominating committee with information for more than 5,500 companies and the detailed biographies of more than 125,000 directors and executives.
Whether your Nominating committee is seeking to minimize interlocks, avoid “overboarded” directors who may not have the capacity to make the commitment your organization needs, or actively seek out diverse candidates, you can assess expertise, connections and degrees of separation – and can do so via both individual and company names. Committees can draw on filter options ranging from discipline, experience and sector to demographics and geographic region.
A proactive committee can also keep a data-driven eye on its own board matrix within the application. Whether it’s securing insights on individual and organizational expertise or drawing on the data to benchmark your collective expertise against that of other boards, the application is integrated within Diligent’s Governance Cloud.
You may have been tracking succession planning insights for your Nominating Committee through spreadsheets to this point in time. In this era of modern governance, boards can increasingly take advantage of technology to support their effectiveness. If you and your board have already made the leap from traditional, hard copy board packages to portal operations, you’ll appreciate the efficiencies and confidence gained through secure access to your meeting materials. How long will it be before you and your board look back on the days of relying primarily on spreadsheets and time-consuming analyses of prospective candidates as another past practice, and turn to technology for secure and efficient support of succession planning and recruiting?