Right choice not always obvious

The right board members are self motivated and do not need external stimuli to produce best results; it is part of their creative nature. Remember it is the board that sets the tone for the rest of the organisation, be it in integrity, ethics, drive, passion or performance.

Jim Collins summed it up perfectly in Good to Great, when he said that, the people who ignite transformation from good to great do not first figure out where to drive the bus and then get the people to take it there, rather they get the right people on the bus and the wrong people off, then as a team they figure out where to drive the bus.
Organisations all over are going through some form of challenges. Some are of an economic nature; others are social, even political. The fact is companies are troubled and they need to be driven to safe waters. Options to safety are just as vast as the challenges facing organisations. Thus it is important to make the right choices in selecting that appropriate team, which can figure out the best option out to safety. Incidentally, the right choice is not always obvious.
Obvious choices are to select board members who have been tried and tested. Ideally this should be based on past performances, but the governance crisis is that choices tend to be based on friendships or associations.

There are popular names within the circles of boards, which often come to the mind of those tasked with nominating possible candidates, whenever they are required to do so. Sometimes one can even trace a pattern of personalities, on either the same board or related boards. It is almost predictable that when director Y is on a board, director X will also be on that same board or related.
Two issues arise from such selection criteria. First, it is the issue of recycling the same strengths or weaknesses in different organisations and second, is the issue of reproducing the same skills onto different boards.
The law requires the board to have at least two members, for among others to have a shared responsibility. Two is better than one, even in the quality of decisions and thus there is no individual board member, who

can do the work of the whole board.
This is based on the assumption that the two are different and they have diverse skills that like in any good story, creates a tension which in turn makes a dynamic energy, necessary to advance the work of the board. Homogeneity is not best for boards.

In having people from the same group of friends and associations, depending on how close they are, in a way denies boards, the diversity and much needed energy to propel the board’s work forward. When one individual selects seven other like-minded colleagues onto a board, it is like reproducing that one member seven times. Again this excludes the advantages of diversity as well as energy from the board.
Board meetings and discussions become boring, because there is no creativity or energy. No wonder then some board members dose off as soon as they take their seats in meetings. There are no new ideas and members do not miss much, when they either dose off or do not attend the meeting altogether.

Another aspect to these “obvious” selection criteria is that where for instance there is weakness in either skill or ethical standards among that group of individuals, it follows that all the other boards and organisations associated with this group of people, will have the same ethical weaknesses.
As said before, it is the board that sets the tone for the rest of the organisation. The King Report in 2009 identified three critical players in the selection of board members namely, shareholders, the nomination committee and the individual.

It is the shareholders who are eventually responsible for the composition of the board and it is in the shareholders’ own interests to ensure that the board is properly constituted. Board appointment procedures should be formal and transparent, and the board as a whole, assisted by the nomination committee is responsible.
However, the onus is on the individual director to determine whether he/ she has the requisite capability to make a meaningful contribution and that he is free from apparent or actual conflicts.

In practice, the CEO often assists in identifying suitable candidates, although the final say is with the shareholder. It is also tempting on the part of the CEO to push forward names of individuals known and familiar to him or her. CEOs are uniquely positioned to provide advice to the board on persons suitable to drive the organisation as board members and having friends and associates on their boards, narrows the potential of the organisation and the CEOs performances too.

Overall, the importance of making right choices in selecting board members as viewed through the lenses of economists is that the opportunity cost of having wrong board members, is not just the weaknesses of those particular board members, but the missed positive contributions of personalities omitted through the selection choices. Hence it could also be said that the obvious, are not always the right choices.
General guidelines in selecting prospective board members include that candidates should be independent based upon pre-determined objective criteria.

Board members should be selected because of the substantive contribution they will make to the overall welfare and development of the company and their expertise and experience that is relevant and useful to the company, not exclusively because they may be a friend or an ally of the CEO or other board members.
Secondly, knowledge and analytical capabilities are critical assets in board members. Given the challenging, political, economic and socio-economic environments in which we are, this ability in board candidates

ensures that they do not “rubber-stamp” issues and recommendations from senior management or other board members.
Integrity is the third guideline, which will function as an ethical compass for members on such issues as conflict of interest. Factionalism and polarisation on boards weaken even the most talented board members, thus appointing and selecting board members should not be about strengthening a side or faction, but about the wellness of organisations.

However, all is not lost even when lesser skilled or experienced persons are appointed to boards.
The King Report as well as many other good governance framework tools, recommend that board members must be trained and developed. The report further advises that new directors with no or limited board experience should receive development and education on their duties, responsibilities, powers and potential liabilities. Mentorship by an experienced director is encouraged. This orientation and development of

directors should be ongoing.
Board development and training gives CEOs the opportunity to share more about the vision of the organisation and describing problems that challenge the board, management, and staff. Board development also allows the CEO, for instance to let the board nominees or directors in on issues that happen behind the scenes, providing a view that is not normally seen by outsiders. Each of these steps helps the CEO determine

the skills and passion of the potential board member.
This nurturing process helps promote interest in the organisation. In these troubled times, it is in the interest of all stakeholders to ensure that the right people are controlling organisations, otherwise we all sink.