Insights from Enterprise and Aspiring Director Perspectives

In this article, VAB member Rob Sligh explores the thinking behind how to recruit for board roles from the enterprise perspective as well as when and why to apply for independent director positions from the candidate perspective. His commentary takes the reader through the preparation and decision-making process in sourcing and onboarding top-tier board director talent and explaining the logic behind individual procedural steps. Likewise, he touches upon the timeframe for when skilled executive (C-level) talent will want to seek out board director or board advisor roles and how they should assess and consider their personal motivations and opportunities.

Boards are looking for independent directors that help the enterprise move toward an envisioned future. Candidates are looking for opportunities to add value and broaden their horizons. Let’s consider the process from both perspectives.

The Enterprise Perspective

It’s estimated that more than 90% of companies in the United States and in the world, including some of the largest, are privately owned or controlled. Private company owners discuss and agree upon a vision, values and expectations for business performance. Expectations typically address things like growth, returns, risk and liquidity. This framework is communicated to the board of directors, ideally in a singular voice.

Executive leadership is responsible for developing and reviewing with the board a strategy designed to power the enterprise to achieve the owner vision within the framework of values needed to achieve business performance expectations.

The role of the board is to see that the enterprise is well led to achieve owner goals.

The board is responsible for self-evaluation. What are the experiences and skills needed on the board to achieve the envisioned future? How does that compare to the existing board? How is the board as a whole and directors, as members of the group, performing? How will the gaps be filled now or in the next couple of years?

When embarking on a process to fill one or more board positions, a board prospectus can be created. The prospectus is an attractive, attention-getting document that typically includes history, business mission, roles and responsibilities of the Board, ownership, key leadership, position requirements, board compensation and the meeting schedule. Importantly, it includes the essential and desirable criteria for the new independent director(s). Non-confidential blind and confidential branded versions of this document can serve as a primary tool to share with potential candidates and gauge their interest. Top candidates will sign a confidentiality / non-disclosure agreement before receiving the confidential prospectus.

An outside firm may be brought in to help insure exposure to a broad array of interested and qualified candidates. Outside firms typically maintain networks that they can tap into and also have processes for reaching out to new candidates in new areas. Boards often have ideas for candidates and those can be fed into the process to help create a level playing field for narrowing down the initial candidate list.

Submitted cover letters and CVs are reviewed. After an initial cut, a broad number of candidates are asked to answer some questions in writing to get specifics on how they view themselves fitting the criteria. That’s preceded or followed by a virtual interview with the outside firm. At that point, interested and qualified candidates may be asked to sign a confidentiality / non-disclosure agreement. Then they receive the confidential prospectus.

Those who are strongly interested and able to invest the time needed for membership on a new board typically engage in a follow-up interview with the Nominating Committee or in any event a subset of the owner / board group. Coming out of that process, the field is further reduced and the final candidates are invited for in-person meetings, typically at enterprise headquarters.

Boards involve collegiality or in other words the ability to share ideas and differences of opinion is a respectful way. Since it’s a group process, in-person interviews can simulate a board meeting. Candidates may be asked to consider a real opportunity or challenge as if they were already part of the board to see how they listen, assert and interact. If there are say three finalists for two independent director positions, they may all be with the board at the same time for such an exercise.

Preparing and integrating new board members is an important follow-on step. It’s advisable to have tours and a general orientation. There is often a dinner the night before the board meeting to create some informal interaction time. The aim is to ensure that the board with its new independent directors gets off to a highly productive start.

The Candidate Perspective

CEOs can broaden their horizons and develop as leaders by serving as an independent director on another board. CEOs often feel they just don’t have the time. But if they wait until they’re close to retirement, they miss out on the development opportunity and find themselves behind others with more board experience.

Boards typically want independent directors with a generalist perspective. But they also value forms of diversity that offer different perspectives valuable to the enterprise. That opens the door for COOs, CFOs, CMOs, CIOs and business unit leaders with profit responsibility.

Presenting to or serving on your own enterprise board is a great way to get started. Serving on a non-profit board is a way to be engaged in the community for a good cause. It typically also offers the opportunity over time for board leadership.

Board experience is more valued than board education. But engaging in organizations that provide board education and networking opportunities are helpful. Board legal duties and director liabilities are examples of things can be learned through education.

Directors don’t generally serve on boards for the pay. But they do want to feel that they are recognized for their commitment through fair compensation. Board compensation studies show broad ranges that generally increase in line with enterprise revenue. While serving on boards can be a great process of continuing engagement in business during or after leaving active leadership, it should not be for the money.

An individual process of planning parallels the owner and board processes. What is my envisioned future? To the extent that includes engagement in an outside board, what kind of company and what kind of board? What are the experiences I need and what do I need to learn to be well-qualified for such a board role?

A curriculum vitae (CV) for a board position is different than one for a leadership position. A board CV emphasizes board experience and board goals. Networking organizations can be good sounding boards for the development of a board CV.

Serving on a board is different than leadership. The role of the board is to see that the enterprise is well run….not to run it. Independent directors can add value by thoroughly reviewing all the pre-read information and coming to meetings prepared, listening, asking insightful questions, respectfully offering new perspectives and sharing experiences that may resonate.

In Sum

Experience shows that businesses with boards that include three or more independent directors perform better, on average, over the long run. That is compelling for many owners. Finding the right independent directors helps power boards toward high performance.

Top leaders that serve on at least one outside business board broaden their horizons and skills. The development experience turns them into better leaders in their own organizations.

When both business boards and candidates find the right fit, it creates value for both and the organizations they serve.