What Decision Makers Look for in a Board of Directors Candidate

The role of the board of directors is to guide and approve the organization’s strategic direction which includes mergers, acquisitions, hiring and firing executives, and capital structure.

Ultimately, the board of directors is responsible for the financial performance of the organization. Corporate scandals, pressure from stock exchanges, investors, and other constituencies have led to organizations to be sensitive to the independence, qualifications, and reputation of their directors. Board of director selection is the formalized process by which individuals are identified, screened, nominated, and elected. Searches for new directors are precipitated by exits of incumbent directors or by board expansion.  Often the reason for the opening will often affect the search for a new director.

While there are similarities in what organizations are looking for in a new director, there is not one set of ideal skills or experiences. Individual searches are often impacted by both external and internal variables.  One such variable is the stage of the organization’s life cycle. For example, a post-IPO firm may be looking for business experts who can provide advice and counsel on how to manage a public company. In the acquisition stage, companies may be looking for directors with experience in acquisitions. For organizations subject to government regulation, nominating committees may search for a director with political connections and experience.

A 2016 Spencer Stuart study of the S&P 500 reported that more than half (53%) of independent directors are active executives and professionals which is continuation of a decade long decline in this percentage. With only 19% of new directors being CEOs, presidents, and chief operating officers, nominating committees look to fill the gap with positions a level or two below the CEO such as division managers and line or functional managers. As in the past, directors with a financial background such as CFO’s, CPA’s, investors, and bankers represent a good share of director positions.

In the past, the conventional wisdom was that the best way to get on a board is to already be on a board. While the majority of directors still have previous board experience, in 2016 nearly one-third are serving on their first board. These first-time directors are more likely to be actively employed than directors who have previous board experience. Nearly one-third of new directors are women which is the highest rate of female representation since 1998. These female independent directors are more likely than their male counterparts to be a line or functional managers. However, the data on female directors did not state whether these female directors were filling openings vacated by other women or were net new adds.

While the Spencer Stuart study provides insights on backgrounds and experiences, this study does not provide insights on the “soft skills” that nominating committees often look for in candidates.  For example, the ability to communicate, collaborate, and offer a fresh perspective on complicated issues may be the deciding factor among equally qualified candidates. Nominating committees also seek individuals with a reputation of ethical decision-making and individuals with a lack of any hint of conflict of interests with the company’s mission and strategy.  Because most boards operate in a collegial and cordial atmosphere, nominating committees look for individuals that can challenge the status quo and express dissent without undue conflict.

Perhaps the changes we have seen in 2016 give us reason to believe that more nominating committees will begin to see women as an untapped pool of candidates who have both the business experience and strong ‘soft skills” necessary to make a substantial contribution to their respective companies.

Reference: 2016 Spencer Stuart Board Index: A Perspective on U. S. Boards