Why regional boards must focus on recruiting the right talent

We have discovered the most popular cliché of corporate governance over the last several years: To talk about how this trend or that idea will lead to the “reinvention” of board governance. This has not yet happened and we wonder if it ever will.

This failure is quite obvious, given how often our current corporate governance models fail. You only have to look around to see enough examples from NMC Group and Arabtec, to many others.

Boards misunderstand and misinterpret risks, disasters, fraud, and of course, the current pandemic impact. They will not wake up until it is too late.

What if we were to start reinventing corporate governance with the one aspect that has seen the most recent attention (and the most real regulatory action)? That is, board recruiting and membership. Because, as uncomfortable as it may make directors worldwide to admit, the way we currently find, train and utilise corporate board members is simply wrong. The lack of diversity in global boardrooms has drawn sharp criticism, and a rising tide of quota and disclosure reforms. But that is only one of the board recruitment flaws that we need to address.

Boards of today need leaders with the ability to see around corners and plan scenarios. A new member to a board should not be appointed because of being a friend of the promoter or a buddy of current board members. Choosing independent board members is important since they represent the interests of the minority shareholders.

It is not just about doing background checks on potential candidates. That is easy. Tighter regulations, activist investors, and the always-on “online” culture mean that a board prospect’s history (both positive and negative) is common knowledge. Due diligence on potential directors has tightened, become more professional and systematic.

One of the hottest areas for verification now is buffed-up career/academic history. It is surprising how many people lie about their credentials. Generally, the farther past an item is, the easier it becomes to insert a few courses taken into a degree, or make up a job title. If anomalies are found, weigh how serious they are, motives behind it, and potential consequences.

The worst part of the cliché is that the talent pool under consideration is getting too shallow. Despite all the noise on opening up board search, worldwide, most directors are named because someone already on the board or the CEO knows them from their own narrow circles, they are friends or relatives, or because of their investment positions.

Sometimes we wonder if board recruitment is done based on titles. CEO and CFO titles rule in board search because they are C-suites.

However, there are other savvy people with strong P&L and leadership skills in organisations or running their own companies. They are younger, more diverse, committed and eager to serve.

They may not already have board experience, and that too in large corporations, but there is nothing special about the role these rising leaders cannot pick up fast. Or, maybe it is time companies made board talent development a priority in the organisation. Current “member of the board” status is just one more title that stunts board renewal and governance rejuvenation.

Shouldn’t boards be concerned about not having the right talent? Companies are wrestling with new disruptive technology threats and opportunities. Global markets are imploding with trade barriers. There are talent shifts and restructuring business models.

Everyone says a board needs people who can contribute fresh first-hand guidance and make connections on these demands. Yet organisations start the search for a new board member with “we want a former CEO who…”.

Finally, most companies are still doing it all by themselves. An audit committee is not the body that performs financial audits for the company. A compensation committee depends on outside experts for pay advice and peer groups for all the groundwork. So why should a board’s nominating committee do its own amateur job of seeking board talent?

The cost of having an outside search firm to come up with a list of great prospects that meet the specifications above is modest. And they have endless connections to current, diverse stars that the present board members don’t even know existed.

Ralph Ward is a global board advisor, coach and publisher. M. Muneer is co-founder of the non-profit Medici Institute and a stakeholder in the Silicon Valley-based deep-tech enterprise Rezonent Corp.