Board Composition: When Is It Time for a Change?

Nicholas J Price
The fast pace and continuous evolution in the marketplace demand that boards continually access their board's composition to ensure that they have the right talent to lead the company into an uncertain future. Reviewing board composition and board director and executive recruiting isn't a 'one and done' exercise.

Most companies are finding that it proves helpful to make their nominating and governance committee a standing committee that meets all year long. Nominating committees are usually chaired by a past board chair or someone who has similar experience. The bylaws should outline who should be on the nominating and governance committee and who is qualified to chair it. The keys to an effective nominating and governance committee is to customize it to meet the needs of the organization and for the committee to take the necessary time to establish a structured process for succession planning and follow it.

Developing a Structured Process for Board Refreshment

Investors and regulatory authorities insist on or require boards to perform annual board self-evaluations as a starting point for boards to continually update and refresh the board with the talent and skills they need to provide corporate oversight. It's acceptable for boards to evaluate the entire board's performance, but boards that are committed to developing a strong board composition may also need to do individual director evaluations to grasp the full scope of where the current board may be lacking.

Before nominating and governance committees can commence their work, they need to define the roles and expectations for incoming board directors. Committees will need to spend some time in preliminary work and ensure that they have accurate job descriptions and a list of key duties and responsibilities for board candidates, as well as any requirements that will be needed to fill board vacancies.

After clarifying job descriptions and expectations, committees will need to identify the skills that board directors need to be successful in their duties. They'll want to look at general skills such as communication and problem-solving, as well as areas of special skills and expertise like finance, cybersecurity, governance, industry experience and strategic planning. Additionally, the committee needs to assess the current board and the board reconfiguration against issues like diversity and independence.

Before pursuing director or executive candidates, boards still need to write out the details on what the commitment entails and evaluate how many hours directors will need to have available to serve, on average. Board directors will serve hours in reviewing materials, as well as attending board meetings, committee meetings and the annual meeting. Committees will need to let recruits know how long their terms will be and what general responsibilities they will be expected to take on. Early conversations with board members should include informing them of the conditions under which they can resign and conditions where the board can remove them from the board in accordance with the bylaws.

A Modern Approach to Effective Succession Planning

If you think about the way that nominating and governance committees have historically approached succession planning, you have to admit that it's a slow, painstaking process that doesn't always produce the expected results, especially given the amount of time that's required to select even one nominee.

In the past, nominating committees have relied predominantly on referrals, business networking or word of mouth for board director candidates. Another strategy that nominating and governance committees relied on was using talent recruiters or 'headhunters.' Talent recruiters may have more resources and an extended reach; however, they also have their limitations in identifying viable, qualified candidates for corporate board directorship. For many companies, the cost of using talent recruiters is cost-prohibitive.

What today's nominating and governance committees need is access to the right data and analytics to help them spot opportunities to diversify their boards and to attract top-quality talent.

Effective Succession Planning with Diligent Nominations

Pressure from investors and regulatory authorities continue to highlight the importance of board competence, especially as it pertains to gender, diversity and overall board composition.

A modern governance approach to succession planning digitizes the process for board director recruiting and nominating. The Diligent Nominations tool gives nominating and governance committees the right information from a vast database of information to empower targeted succession planning.

An executive or director search begins with performing a health check of your board's current composition and effectiveness. This is possible by being able to view a matrix of your board's skills and expertise that will serve to identify the board's combined strengths and weaknesses, which the committee can view in detail by individual director and compare data with the expertise of peers. Diligent Nominations streamlines the process by providing a detailed breakdown of factors that contribute to your board's effectiveness. The tool breaks down such factors as gender and age diversity, director interlocks and overboarding and even compares these factors to those of competitors.

Succession planning would be so much easier if committees had a list of potential candidates and could easily retrieve their biographies, experience and networks. Diligent Nominations makes that possible.

Finding your next board candidates is less time-consuming with Diligent Nominations, where you can analyze director interlocks by individual or company, identify overlapping directorships, find seats on competing boards and identify seats on FATF-listed companies. The tool also gives committees the ability to detect the shortest path to connect with candidates, as well as the degrees of separation to a potential candidate through organizations or people. With access to data across 5,500 companies in 24 global markets and 40 indexes, it opens an enormous window of opportunity to attract the most talented, qualified candidates. Diligent Nominations essentially brings detailed biographies of over 125,000 directors and candidates into your boardroom. Granular filter options offer committees the advantage of narrowing down their search by experience, demographic, region, sector and discipline.

Whether or not committees choose to use talent recruiters, providing nominating and governance committees with the right digital tools will lead to more effective board recruitment.

Diligent Nominations fully integrates with Governance Cloud, a suite of highly secure digital governance solutions. Equip your boards with Diligent Nominations and give them the information to turn insights into a targeted succession plan that sets the stage to meet today's governance standards.
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Nicholas J. Price
Nicholas J. Price is a former Manager at Diligent. He has worked extensively in the governance space, particularly on the key governance technologies that can support leadership with the visibility, data and operating capabilities for more effective decision-making.