Dr. Earl R. Smith II

Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com

Historically, the process of selecting and vetting candidates for board of directors membership is one of those areas where many companies came up short. Some picked from a narrow range of friends and associates. Others outsourced the process to a recruiter. Few preceded the search and selection process with a board assessment. Much of that is changing in this post-Sarbanes-Oxley world.

Both the Nominating committee and other board members carefully scrutinize for board and officer positions. It is now more normal that candidates will be interviewed multiple times prior to being invited to join the board. Boards need to be satisfied that the person joining the board can handle the external pressures, can think strategically, is sensitive to reporting and regulatory demands, and has the kills relevant to their business and industry.

Five or ten years ago, the process was not so rigorous. If the CEO was fully behind a candidate, the Nominating committee usually rubber-stamped the candidate and the decision was final. However, in the post-Enron years candidates must become comfortable with heavy board involvement in the hiring process. The greater scrutiny of candidates considers the future of the company of as a primary concern, but in the litigious business environment today, board members also want to know the person and their values before becoming linked with them in the business of corporate governance.

More often than not, when legal action is brought against a company, individual directors, and the company is named as defendants. Courts today have ruled directors may be held proportionally liable in cases when they knew or should have known another board member was involved in wrongdoing. Even cases of frivolous suits can be expensive and embarrassing to litigate or settle. Board candidates are often asked to submit to background checks. Directors and Officers insurance will not cover actions that happened prior to a new director actually being cover under the policy even if the action was at a subsidiary company.

High profile cases have made sitting on a board a bit more uncomfortable for some directors. Executives agree Sarbanes-Oxley has made the risk to board members greater than ever. Directors want to know the members they are serving with understand compliance management and respect corporate ethics. Directors want new board members to have the same level of transparency in their business affairs as is currently the norm among sitting board members.

Board members want the opportunity to conduct their own assessment of the candidate and to discern their leadership style. Directors want to know the candidate’s style and personality will be an asset to the board and not a source of frustration and a hindrance to the board in moving forward with the strategic plan.

Boards are no longer only concerned with prior accomplishments or educational attainment. Boards want to understand the candidate’s values. Directors represent the board and the company or organization in many ways. Outside the corporation, affiliations are more important than ever with advent of digital media and the access potential customer and investor have to the internet.

Equally important, boards are concerned with the candidate’s views of regulations and corporate ethics. Scandals and embarrassing investigations can mar the career of otherwise promising executives. Even when the allegations are proven false, the process of rebuilding a company or director’s reputation can be difficult. Directors need a comfort level that new directors will not be a distraction by being involved in any less than transparent deals that could create suspect situations for the board or the company.

Corporate governance is a difficult business at best, and leadership is a key to a board’s success. Directors want to know the focus of board of directors meetings will be on the company’s issues and strategies, and they want to know new board members will share in the vision and add to the discussion. Candidates may be highly qualified on paper, but the vetting process is much more detailed than hiring someone with the right educational credentials.

Twice during the past year, companies that were in the process of rebuilding their boards have approached me. Their initial request was that I come in after they had seated the new members. In both cases, I declined. Discussions lead to an agreement under which organized a board assessment and participated in the process of identifying, vetting and selecting board members. As an outside participant, I was able to improve both the quality and commitment of the new board members.

If you are dealing with a board and would like to know more about my board services, send me an e-mail and we will arrange a time to talk.

© Dr. Earl R. Smith II

Related Articles:

• 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
• Board Assessment – A Critical Part of Good Governance
• The Succession Committee – Selecting Leadership for the Future

Dr. Smith is Managing Partner of The Federal Circle. The Federal Circle partners with teams and existing companies. We help them up their game and win big in the Federal space. We also arrange funding for acquisitions and expansion by acquisition. Our model is based on the belief that, if you select the very best and work with them in a highly professional and focused manner, the results will be truly amazing. 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 Sunday, November 23rd, 2008 at 10:41 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.