Dr. Earl R. Smith II

Historically, the process of selecting and vetting candidates for board of directors membership is one of those areas where many companies came up short.

Every company and every organization should have a highly skilled and engaged board of directors. This is true for both for-profit and non-profit organizations.

One area of my work that has gotten a lot more attention since 2002 is the question of exposure of directors to liabilities arising from their board service. Most serving directors realize that managing this liability is only partially under their control.

Sarbanes-Oxley and the rules reflected by the Security and Exchange Commission and most stock exchange listing rules, have redefined what good governance practices look like.

Non-profits corporations are often the governance model used to address community-based problems. Non-profit boards are often composed of community leaders with a common goal of eradicating issues affecting the quality of life in their community.

A board’s primary responsibility to the shareholders of the company is to protect and enhance the value of the shareholders interest in the company. This responsibility has not changed with the business environment today’s boards operate in, however the work boards engage in and the scrutiny directors now fall under has changed drastically.

Minority corporate directors play an important role in leading companies. Each minority board member brings something different to the board. Hiring committees should consider the skills and background the director brings to the board.

Boards operate in complex environments that require them to balance a wide range of issues and challenges. Their charter – to preserve and extend shareholder value – might sound simple enough but the pursuit of that objective can quickly bring on some very complex questions.

Some of my engagements are with start-up and middle market companies that are experiencing very high growth rates. These companies face a challenge in recruiting high-quality directors. The combination of risk (the exposure of board service is much higher these days) and limits on the types of compensation available, make the search particularly challenging.

Demands on non-profit boards are greater today than at any time in recent history. Scandals at venerable organizations coupled with apathy and difficult economic times make fund raising and funding streams uncertain.