“Understanding shareholders and maintaining shareholder engagement is critical in board composition,” said Maureen Errity, director of the Deloitte USA LLP Center for Corporate Governance. “It’s about knowing who your shareholders are and what they’re looking for,” she explained to a room full of NACD Board Leadership Conference 2011 attendees seeking more insight into best practices for choosing the next great director for their board.
Errity predicted that director qualification requirements will be linked more closely with company strategy in the future, and boards need to stay in touch with new regulatory developments. “With compensation committees becoming more in the spotlight with the many governance changes of the Dodd-Frank Act, directors need to be informed on the changing governance landscape and help keep their fellow directors informed,” she said.
Prior to evaluating the characteristics of a potential director, boards must first look inward at the characteristics of the board in relation to the company’s overall strategy, noted Eric Pillmore, senior advisor of the Center for Corporate Governance at Deloitte. “It should be a continual process to say who is our next board member, what skills do we need, and what gaps need to be filled around strategy?” Pillmore said.
“Where boards stumble is not going through the step to organize necessary attributes of the board, to see what attributes are already on the board and evaluate gaps,” continued Pillmore.
Many of the directors present agreed that the new director nominee must be a unanimous choice amongst the entire board. “I’d like to know I can trust who’s sitting next to me at the table,” one director noted.
Errity explained she believed it was a best practice to have a one-on-one interview between all current and prospective board members. “They need to make sure they are going to fit into the culture of the board,” she said.