Board Recruiting: The ‘Known Quantity’ Factor In Finding New Directors

Board Recruiting: The ‘Known Quantity’ Factor In Finding New Directors

The most common method of successfully recruiting a new director involves existing board members and company officers using their own networks and personal contacts to suggest names of possible candidates. Survey results suggest that 65 percent of board appointments are based on board members’ own network or personal knowledge.

  Personal networks can be a valuable source of information about potential candidates. The chief advantage of using a network is that there is firsthand knowledge of a candidate’s working style. This will assist in determining whether a director will be able to work in a collegial manner with other directors.

  There are, however, obvious disadvantages with this method.

  The depth and range of the pool of potential candidates identified will be limited to only those candidates known to directors and officers of the company. Often there will be a number of qualified and suitable candidates who are outside a company’s immediate contact list.

  Not Filled Up with Friends

  Further, caution is needed to ensure that the board is not filled with friends of board members. A key feature of an effective board is independence of mind. A board full of directors always agreeing with each other will not function efficiently. The board must be comprised of people who fill a defined need, challenge the status quo, ask appropriate questions and are persistent in getting answers.

  Many criticize the use of existing networks as a method of recruitment, particularly when employed by large publicly listed companies. The practice is, however, not confined to top listed companies. The same process is used by many community organizations, charities, government bodies, and larger private companies even where it is overlaid with a more formal process.

  What these boards are doing, albeit in an informal way, is dealing with one of the most important criteria for selecting a new director —whether the director’s personal style ‘fits’ with the rest of the board. Chairs and directors feel most confident in assessing this “soft” factor by one or more of their peers actually knowing the candidate first-hand and vouching for their suitability.

  The importance of ‘getting the right fit’ to maximize the board’s performance should not be underestimated. The appointment of a new director can affect the chemistry of an entire board. It is imperative that every board member has a good rapport with the senior officers of the company as well as with other board members.

  Danger in Getting the ‘Fit’ Wrong

  Boards have a fragile social fabric that depends to a great extent on goodwill and the ability to challenge views and disagree without destroying relationships. Group dynamics can make (or break) the effectiveness of a board. There are risks for a board in getting the ‘fit’ wrong as directors cannot be removed by the board itself but only by shareholders or members.

  In light of the importance of boards working together cooperatively, informal selection processes based on ‘known quantities’ can have beneficial effects, provided this does not perpetuate values that are contrary to the best interests of shareholders or the wider community.

  Boards may wish to consider consulting with trusted female networks or organizations to assist with gathering a gender-balanced candidate pool.

 

  Anthea McIntyre was senior policy advisor and legal counsel for the Australian Institute of Company Directors when she wrote the book, “Tomorrow’s Boards: Creating Balanced and Effective Boards.” The book was published by the Australian Institute of Company Directors in 2011. The above article, published in Directors & Boards, is a passage from the book. Copyright ©2011 by the Institute of Company Directors. Reprinted with permission.