Dr. Earl R. Smith II

By Dr. Earl R. Smith II
DrSmith@Dr-Smith.com
www.Dr-Smith.com

Few decisions made by a board can alter the functionality of a board more than new board member selection. The Nominating committee is one of the three most powerful committees a board usually establishes in the course of normal business. The Nominating committee must consider a candidate’s business affiliations, business experience, educational attainment and leadership style during the interview phase of the vetting process. The board of director’s duty is to the shareholder and to returning acceptable returns in the form of long-term value. New board members should assure the Nominating committee of their commitment to the organization’s corporate ethics and strategic plan, as well as, their loyalty to the organization itself. If a candidate has other loyalties of more importance, the Nominating committee should be comfortable with the arrangement or not recommend the candidate to the full board.

The dynamics between board members has a major impact on how a board functions. The board of directors is the senior guiding body of the company, and within this leadership body are the leaders of the board. New board members, with their own leadership style, can change the dynamics of the board with the first discussion or the first vote taken by the newly composed board. The Nominating committee should identify candidates with whom they feel comfortable working, and whom they feel can establish a sound working relationship with the Chairman and the CEO. The Nominating committee should operate independent of the CEO, but the CEO can provide a leadership assessment to the Nominating committee regarding skills that will be valuable to executing the company’s strategic plan.

Sarbanes-Oxley requires the Nominating committee to nominate directors to ensure the number of independent directors is above half the board membership. The Nominating committee must investigate candidates and ensure no business affiliations exist between the CEO and other senior corporate management that would destroy the independence of the board. Ideally, the board is a strong supporter of the CEO, and the CEO should have a professional respect for the board members and be able to call upon individual board members for assistance based upon the situation the CEO is facing.

In today’s business environment, Hedge funds and institutional investors often own more than 90% of the stock in publically traded corporations. In this situation, Nominating committees may feel pressured to find candidates sympathetic to the wishes of the Hedge funds when searching for new board members. Often the Hedge fund or Institutional investor is more interested in short-term gains and dividends than in long-term growth. The full board can combat this by establishing new candidate criteria that represents the needs the board has for new talent and experience with input from the CEO regarding skills the company needs to execute the strategic plan.

Loyalty is valued highly among Nominating committees, corporate directors and CEOs when assessing new board directors. Directors want to feel as comfortable as possible that new directors will hold to the same corporate ethics as they do. With courts today deciding that all board members are proportionately liable for the actions of the board as a whole or for the actions of an individual board member, directors have strong interest in ensure new directors understand the business and operate in a transparent and ethical manner.

Board dynamics also determine how the board reaches decisions. Boards with a culture that respects the opinions of all and values open discussions will welcome new directors with different ideas. The Nominating committee must however make sure the new director has the right leadership skills to voice new ideas without trampling on the ideas of existing board members or the CEO.

If you are working with a board, serving on one or just want to know more about new member selection, send me an e-mail and we will arrange a time to talk.

Related Articles:

• Officer and Director Vetting
• Non-Profit Board Member Selection - Excellence Breeds Excellence
• The CEO’s role in board member selection
• Board Succession Planning - Two Tiered Candidate Criteria
• Good Governance - Board Member Selection Criteria
• Business Ethics - A Function of Corporate Governance and Commitment
• Corporate Talent - Coaching and Retaining the Best

Dr. Smith is a proven senior executive, successful entrepreneur, published author and public speaker. He serves on boards of directors and advisory boards or as a strategic advisor to CEOs. Dr. Smith specializes in turnaround management, strategic planning, leadership development and executive coaching. He also works as an executive and/or life coach in the areas of personal growth and spirituality. He is the author of Amazing Pace: Turbo-charged Business Development - a book that shows how Advisory Boards can dramatically increase revenue. Dr. Smith is also the author of Dream Walk: Parables for the Living - a book of Raven Tales and exploration.

This entry was posted on Saturday, November 29th, 2008 at 10:21 am and is filed under Governance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.