How to select the right director

It's no secret that one of the most important factors behind a company that consistently performs well is the right board with the right blend of skills and experience. More difficult is how to get that ideal blend.

Over the years, many experienced directors have noted that the most crucial determinant of a successful company is a skillful, knowledgeable and experienced board.

In practice, this means that the board must agree, on behalf of shareholders, on the requisite skills and experience individual directors must possess, as well as the blend of skills and experience across the board and its committees.

The board must be able to debate to a conclusion, challenge management robustly, have strategic foresight and consistently make the right decisions to create value.

This is not an easy task and the right skills and experience are not easy to come by.

It can no longer be accepted that just anyone can discharge duties of a non-executive director and much care needs to be undertaken to ensure a board is populated with the right skills to be able to “smell the smoke” and engage with outcome thinking.

If the board is structured appropriately, and the directors are engaged, the company will perform well over time.

What are general key competencies for directors?

The skills, knowledge and experience needed by a board are determined by the size and type of organisation, the markets in which it operates and its line of business. While the specific skills required will differ, there are some core skills that should be represented on every board. Not all directors will possess all of these skills but the board as a whole should possess them.

What are the core business skills and knowledge?

  • Strategic expertise – the ability to review the strategy through constructive questioning and suggestion, and to use and implement knowledge built up over years of experience
  • Financial literacy – the ability to read and comprehend the company’s accounts, financial material presented to the board, financial reporting requirements and some understanding of corporate finance
  • Relevant legal knowledge – the board’s responsibility involves overseeing compliance with numerous New Zealand legislation as well as understanding an individual director’s legal duties and responsibilities
  • Managing risk – experience in managing areas of major risk to the organisation
  • Managing people and achieving change
  • Experience with financial markets
  • Industry knowledge relevant to this organisation

What are desirable personal qualities?

While each director will bring various technical skills and knowledge to a board, there are personal qualities that are desirable in all directors:

  • Integrity – fulfilling a director’s duties and responsibilities, putting the organisation’s interests before personal interests, acting ethically
  • Curiosity and courage – a director must have the curiosity to ask questions and the courage to persist in asking or to challenge management and fellow board members where necessary
  • Interpersonal skills and the ability to work in a collegial team – a director must work well in a group, listen well, be tactful but able to communicate their point of view frankly
  • Genuine interest in the organisation and its business
  • Instinct – good business instincts and acumen, ability to get to the crux of the issue quickly
  • An active contributor – there is no room on boards today for those who do not contribute

How does a board analyse its specific needs?

The board is responsible for ensuring that the skills, knowledge and experience needed to effectively steer the organisation both now and in the future are represented on the board. An analysis of the current board’s skills and experience in relation to organisational strategy and future goals will help in identifying gaps in knowledge and targeting selection criteria. Directors should be appointed for their special skills and knowledge that will assist with the issues and opportunities the company is facing.

Additionally, if an organisation has special needs or exposure to a particular stakeholder group, it makes sense to include a director who has experience in that area. For example, a company that spends a great deal of time doing business with government may need someone with first-hand experience of the political process.

The board’s needs will alter as an organisation reaches a new stage in its lifecycle. Therefore, when defining needs, consider where the organisation is heading as well as where it is now. Expanding operations into new product/service or geographic areas, planning acquisitions, staving off a growing competitive threat etc, will impact on the skills and knowledge required by the board.

Henri Eliot is CEO of Board Dynamics