Governance Requires Quality Recruitment
It was a privilege to speak at the recent national conference of the Society of Corporate Secretaries and Governance Professionals, a non-profit organization of corporate secretaries and business executives involved in governance, ethics and compliance at public, private and not-for-profit organizations.
The presentation “Pursuing and Recruiting Directors—How Best to Do So?” gave attendees insights into this critical subject. Beverly L. O’Toole, general counsel of corporate governance at Goldman Sachs Group, and I prepared a follow-up video for the society’s website. I would like to share some of its highlights with you and you can also view it at www.stuartlevine.com.
Fundamentally, a board’s responsibility is to validate strategy and be responsible for CEO succession and performance. The board assures that compensation plans reflect accountability to shareholders for the overall performance of the corporation.
Board recruitment is directly tied to these responsibilities. The board’s oversight of the creation and implementation of the strategic plan requires skill sets that a director must possess to meet both the future needs of the organization, as well as its current requirements.
Establishment of criteria for board recruitment is a best practice. Criteria provide a yardstick against which candidates can be measured. Diversity of background, thought and experience adds to the richness of the board and should be part of the recruitment calculus. The governance and nominating committee is primarily involved in setting the criteria, but the entire board must have a voice. A criteria-based approach avoids the focus on personalities, allowing the organization to concentrate on the characteristics required.
Board recruitment is a continuous process. For private companies, search firms can track the pipeline of director candidates available in the coming year. These firms are constantly in the market and are well positioned to access a network of candidates with various skills and diversity characteristics.
One characteristic that is critical to all board members is intellectual curiosity. This quality is as essential for board members as it is for management as it denotes the importance of continuous learning. Inquisitiveness gives a director a broad and deep view of the environment in which the organization operates. It is key to innovative thinking and overseeing the organization. Continuous learning must be part of an organization’s culture and it starts with the culture of the board. Smart CEOs are at the leading edge of change. The board must match them in that quest.
As a best practice, the Board should assess its own performance annually and each member should complete a self-assessment. This process must be handled with discretion and confidentiality which builds trust, standards of behavior and ensures a strong culture for the board.
Boards are moving toward a more rigorous assessment processes that ensure directors are performing at an appropriate level. Occasionally the removal of a director is in the organization’s best interest. It is much easier, however, not to bring on a director in the first place rather than have to dismiss one. Make sure that the CEO is part of the initial board candidate vetting process.
Some organizations make peer evaluation part of the annual assessment. Other organizations perform an informal peer assessment with a lead director, perhaps the chair of the board or of the governance committee, canvassing the board members to ascertain that each director is properly engaged. The lead director acts if a problem exists. Often a conversation remedies the situation, but in other cases, the director may not be re-nominated.
A one-size-fits-all approach to term limits is not practical. Longer serving directors can have important perspectives, understanding an organization’s history and applying that unique knowledge to current challenges. This depth can be lost under term limits. Additionally, a member may just be hitting stride when the term limit comes into play. Credit union members ultimately have the right to elect different directors if needed, regardless of whether term limits exist.
Essential to the success of the organization, is the board’s attention to identifying, pursuing and recruiting quality directors that are intellectually curious and have the needed skills according to the criteria that the board establishes. Responsible governance depends on it.
Stuart R. Levine is chairman/CEO of Stuart Levine & Associates. Contact (516) 465-0800 or stuartlevine.com.