How boards can maximise the success of a company

19 / 07 / 2016

The nomination committee plays a vital, but often understated role to ensuring that the board has and continues to have the necessary range of skills and expertise. It is critical for success of a company to have a strategy for the future, including in the structure of its boardroom.

ICSA: The Governance Institute (ICSA) recently published a report with Ernst & Young based on roundtable discussions with chairmen, nomination committee chairmen, company secretaries and members of 40 companies (predominantly from the FTSE 350). The report delivers a valuable insight into the variety of ways in which nomination committees can operate to maximise the long-term success of a company and delivers three very clean and simple messages.

1.  Look within the company to identify and help develop its future leaders

As part of the board’s duty to create value for shareholders in the long-term, it is vital for the nomination committee to develop a sufficient pool of talent and skills in the corporate management pipeline and that the processes in place to recruit and develop new talent are continually reviewed.

It was reported that companies are considering having their nomination committees look deeper into the organisation and be involved in the appointment of senior executives and those immediately below board level. This can be done by shortlisting star individuals and by non-executive directors (NEDs) spending time to understand the business operations and those who are energising the business below board level.

The development of executives by having them take on NED positions elsewhere, or by giving them positions on subsidiary joint venture boards, was also suggested to assist in bridging the gap in knowledge that operational executives may have in areas such as regulation and in dealing with investors.

2. Cast a wider net for NEDs

Maintaining diversity at board level enables companies to meet the need for various skill sets to tackle the challenges that come from increasing globalisation, technological change and challenges from start-ups. Along with sourcing directors of different genders and from different cultural backgrounds, creating a broad set of skills at board level is important.

Induction programmes and training opportunities for incoming and existing directors were reported to be used to develop skills whilst skill matrixes, psychometric tests and social and psychological profiling tests can be used to establish what skills are needed and to assess candidates.

Advertising for specific advisory roles can also be attractive where there is a skill gap in a niche area, such as technology, as this may be more attractive to candidates that taking on a role on the board.

Additionally, it has been reported that solely relying on existing networks can assist in avoiding incidental preferences for NEDs of a similar mould to those already appointed. Instead, advertising roles and involving head-hunters in the recruiting strategy can assist in discovering new talents.

3. Think ahead and look for future leaders

Succession planning is vital: this should be viewed as part of the corporate strategy and not a knee-jerk reaction to a boardroom vacancy. Succession planning should be delivered in line with what the board identifies as its targeted areas of growth together with the challenges it faces on the horizon.

Recruitment agencies can be used in a long-term strategic manner, by hiring them on retainers to assess the skills needed by the board, although this support function should be balanced with the nomination committees maintaining control of board succession planning.

Finally, to ensure smooth transitions between directors, it is advisable for companies to look ahead and engineer rotations, or the terms of NED appointments, to avoid a situation where multiple directors leave within a short period of time.

Conclusion

It is vital that companies rigorously engage in issues of succession and devote time to the structure of the board room, and the development opportunities which lie within the business, both for today and for the future.

For further information please contact Edward Craft, Edmund Goodin or a member of the Corporate Team.