Building a High-Performing Board
Some firms are using more formal processes for selecting their directors but perhaps some should become all.
The selection of board members has often been informal. Even today, directors are sometimes appointed because they are personal friends of an existing board member or the CEO.
Increasingly, however, firms are using more formal processes for selecting their directors. This article, based on research amongst leading US companies, argues that all companies should adopt formal processes. It identifies the particular dimensions of board effectiveness that should shape whom the board recruits (specific knowledge and information, power and availability) and the selection processes which are likely to improve the performance of the board (established membership guidelines, a membership committee, a formal search process, and interviews with the board).
The membership of corporate boards is a key determinant of how effective they are in governing corporations. Without the right membership, boards simply cannot play a major role in shaping how corporations operate. The best boards are composed of individuals with different skills, knowledge, information, power, and time to contribute. Given the diversity of expertise, information, and availability that is needed to understand and govern today’s complex businesses, it is unrealistic to expect an individual director to be knowledgeable and informed about all phases of the business. It is also unrealistic to expect individual directors to be available at all times and to influence all decisions. Thus, in staffing most boards, it is best to think of individuals contributing different pieces to the total picture that it takes to create an effective board.
Building an Effective Team
To build an effective board, one must begin by identifying the needs of the board and from there assemble a set of individuals who together supply all the relevant talent and attributes. Three dimensions of board effectiveness should shape whom the board recruits:
- Knowledge and information
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Power
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Opportunity and availability