Board Recruiting Trends

May 1, 2008

Last week’s Fortune Magazine ran an article called Lessons of the Fall. In it several big- time CEOs were asked what they learned from their highly publicized firings. As one reflected on his Board of Directors, he observed, ‘looking at the company through a little hole once a quarter at a four-hour meeting - board members don’t know much about the company’. This is a comment we hear a lot.

In the past year, we have seen a dramatic increase in our board-related work. This is a noteworthy shift since start-up boards in Canada have historically been investor dominated private clubs. As one investor once lectured me, “the need for outside board members is nonsense. Think about it, what adds greater value, some operator with the narrow perspective of a few operational gigs or someone like myself who sits on a large number of boards and is able to observe them all”.
Several tectonic shifts have challenged the prevailing wisdom or hubris. Sorbannes-Oxley and other governance changes have removed the phrase “I did not know” from the board vocabulary. It is now expected that board members know what is going on in the organizations for which they are responsible and many portfolio manager investors simply do not have the expertise to drill down. They now need board members who know the questions to ask and even better, the right answers to those questions.

Accompanying the push into independent board members is the pull for supplementary expertise. It may be the gray hair of an executive who has lived the company’s future and can apply that wisdom to help the firm avoid the many potholes before it. It may be someone with specific customer intimacy or contacts in markets important to the organization. It may be someone who can gain the confidence of the CEO and act as an advisor/mentor. It may be someone with experience building an organization via acquisitions who can share lessons learned with the management team. It may be someone who could serve as a potential successor to the CEO, or it may be someone, who by virtue of joining the board, adds a certain cachet to the organization.

One interesting trend is that firms are reaching one level down to add highly skilled functional executives to their boards. This is underutilized yet holds considerable promise. Here, organizations attract to their boards a VP of marketing or sales or engineering with an impressive pedigree. The quid pro quo of this strategy is compelling. The up-and-comer gains valuable experience and a board notch on their resume. The company gets highly specialized, current expertise on their boards and an individual who may well be willing to devote more time to their cause than a busy CEO who sits on multiple boards already. While the learning curve to becoming an effective board member may be higher, for many organizations it is a risk worth taking.