Let’s pretend that you’ve been selected to be the CEO of a new, multi-billion dollar spin-off from a respected corporation. One of the first things to be done is to form a board of directors. You have hired me to be your advisor. How do we go about forming the perfect board?
First, I would hope that you would be chairman and an active participant in the recruiting of directors. I hope you have had experience as an inside board member and at least one outside board. If not, I’ve got some reading for you to do.
We’ll plan on having a nine-person board. That is large enough to cover the talents we need and small enough to indulge in vigorous discussion of our key issues.
Our first priority is to recruit a chairman of our audit committee. We should get someone who came up through the control route and is, or was, the CFO of a company comparable to ours. Our prospective audit committee chairman must be conversant with current audit policies.
An equally high priority is to recruit the chairman of the compensation committee. This should preferably be a past or present CEO of a company that has made successful use of incentive programs. Ideally, our prospect should have had some compensation committee experience.
Next I would look for a seasoned operating executive with experience relative to our company’s functional structure. If this executive is a “people person” with some HR exposure, so much the better.
For our fifth director, I would seek a financially minded corporate executive who has been broadly exposed to acquisition situations and knows the ways of the financial community.
Sixth, I want to add a market-oriented director who can help shape the company’s policy towards more effective global distribution, market and product development, and customer service.
Seventh, we need a director with a technical background and know-how who understands the overriding technology of our company. We need his input from the scientific viewpoint.
Eighth, in this day and age, we must have a director who fully comprehends information technology, telecommunication, and the Internet. He can help guide the company in these interesting new areas.
Finally, for our ninth director, I would like to see someone from academia, preferably a business school dean or a professor with considerable corporate exposure. Such a person can add much to board analysis.
I would pick the chairman of the corporate governance committee after the full complement of directors has been named. Then, I would select the most broad-based, talented person in the bunch for this important post.
Please note that I suggest no investment or commercial bankers, no law firm members, no consultants, and no special interest shareholders.
Is our job done? Hardly. We have not yet considered several significant criteria in board composition. We need to have age dispersion so that too many directors don’t retire at the same time. We need to diversify with women and minorities that bring re-freshing viewpoints. We need a blend of global experiences. A variety of personalities is desirable. As we discuss and interview candidates, it’s vital to keep diversification in mind, for it’s a serious consideration.
The composition of the board is only the beginning. The new board must decide how to compensate directors, what information will be supplied, how the committee charters will be phrased, and when the performance evaluations of the CEO, the board, and individual directors will be done.
The real key to board effectiveness comes through practice and learning. Each director has much to learn about the company and its challenges. They must meet the people and understand the processes of the company. Importantly, they must learn to work together as they shape corporate policies.
Is it an impossible task to devise a perfect board? Probably. There are too many compromises that have to be made and there will be some errors of commission and omission.
Nevertheless, it’s well worth trying-and ceaselessly re-trying-to achieve the near perfect board for your company. It costs no more than does a slap-dash board and, oh, what a difference it makes!