Numerous recent corporate disasters – particularly in the financial services sector – are the result of poor board governance and weak risk management.
“To militate against this, recruiting and developing new directors to ensure optimal functioning is one of the most crucial duties of the board today,” says Sandra Burmeister, CEO of Landelahni, Africa partner of the global Amrop executive search group. “Since more ‘first timers’ are being appointed to boards than ever before, the accelerated development of board talent is becoming extremely important.
“Increasingly, boards are developing sophisticated recruitment and selection processes to develop a broad pipeline of top quality members with a diverse range of skills, abilities and insights – as well as ethnic and gender diversity – to meet the demands of the complex and volatile environment in which they operate.”
The growing accountability of directors under the new Companies Act and the King Report on Governance (King III) means non-executive directors are taking on fewer board roles. In addition, with the drive to transformation in South Africa, boards are increasing in size so as to balance new directors with a shareholding in the company with independent non-executive directors.
“At the same time, the shorter tenure of non-executive directors means we can no longer rely on long-standing board members to provide counsel and guidance,” says Burmeister. “We must develop new talent faster to ensure a pool of skilled non-executive directors for the future.
“It is important to broaden sources of talent by casting the net wider in regard to experience, skills and geographies. Evolving corporate governance best practice dictates that board directors need to possess not only outstanding technical skills, but also extraordinary personal qualities and commitment.
“Developing board talent takes time and needs to be done consistently. This requires a focused and ongoing succession and development plan to identify and develop board members with high potential. Accelerated development of high-potential board talent is essential to support the appointment of independent non-executive directors in compliance with ever more stringent corporate governance requirements.
“Boards would do well to evaluate, every few years, the relevance of existing skills to support the strategic direction of the company, and then to implement a rigorous and transparent non-executive director appointment process to hire – and develop – additional key skills.”
“There are several models for board succession and development. Leading companies appoint two or three alternate directors with high potential and support their growth through formal coaching and mentoring so as to develop the required skills. They attend all board meetings so as to build knowledge of the business and strategic issues over a period of time, and are able to take over seamlessly as existing board members retire from the board. This generates an excellent pipeline of experienced board members.”
Corporate governance policies such as those put forward by King III are critical in determining the strategic direction and ultimately, the performance of the company.
“According to King III, non-executive directors play an important role in providing judgment independent of management on issues facing the company,” says Landelahni director Alan Witherden. “They need to be engaged in risk management and involved in appointing, removing and remunerating executives as well as succession planning. But, it must be asked, are directors exhibiting appropriate behaviours?
“New non-executive directors need to have a clear understanding of the role of the board. They need to display independent thinking based on their knowledge, skills and experience. They need to question assumptions and established beliefs and engage in rigorous debate in a constructive way – while retaining a common vision of where the company is heading.
“Like other directors, the non-executive director, must be sensitive to short-term pressures, yet be informed of broader issues; he must focus on commercial needs while acting responsibly with regard to all stakeholders.”
In the past, the chairman of the board often took on the role of coach or mentor. “However,” says Witherden, “with growing demands on his time, the formal appointment of a professional coach or mentor may be necessary – and more beneficial.
“A coach or mentor can assist the new non-executive director with anything from understanding the role of board committees to developing a sound grasp of the organisation’s business so he can properly evaluate information provided by management.
“He can assist the new non-executive director in framing objective challenges to management so he can question intelligently, debate constructively, and develop the confidence to defend his own beliefs for the ultimate benefit of the organisation.”