Introduction

There has never been a greater focus on corporate boards than what we see today; from how they are composed over the influence they carry to how they perform, attention is attracted from politicians, public authorities, media, investors, and all the rest of the business environment.

Global financial turmoil followed by corporate scandals and investor activism are all ingredients which have put further pressure on time spent on boards, on the individual contributions to the board and the overall performance by the board, and what that means to the company in question.

The number of operational activities and the details of these with which the board is expected to be familiar are growing rapidly. Directors' responsibilities are expanding and the implied liabilities are being scrutinized in an increasingly litigious environment.

Take all this—and add the exponentially growing haste in technology innovation, business model development and shortened supply chains that our businesses are facing—and you have the new paradigm that corporate boards all have to acknowledge and deal with.

Predictability has been replaced by exponentiality and disruption. All businesses are now facing the challenge of trying to navigate through an opaque political, societal, and economical fog—and just adding spice to that, in an acceleration continuum that resembles the experience of jet fighter pilots when reaching 6 G.

When everything around you changes at increasing speed, remaining in your own place actually means you will soon feel like falling back. Inevitably, boards of today must act much more agile than any of their predecessors in order for their businesses not to hit a redundancy wall. This puts a tremendous pressure on political, public, and especially business leaders. They are the ones with the ultimate responsibility for setting course, navigating through hazardous waters, and reaching destinations.

All this means that the evaluation, the attraction, the appointment, and the continuous development of directors is more important than ever before. And in the driver's seat for all this is the board itself.

Who Has the Right to Nominate and Elect the Board?

With the OECD Corporate Governance Factbook 2019 as our source, we have 49 countries and/or legal jurisdictions covered in the following guide (the 36 OECD countries plus Argentina, Brazil, China, Colombia, Costa Rica, Hong Kong, India, Indonesia, Lithuania, the Russian Federation, Saudi Arabia, Singapore, and South Africa), and in almost all jurisdictions, shareholders can nominate board members or propose candidates.

Some jurisdictions set a minimum shareholding requirement for a shareholder to nominate, usually at the same level as the shareholders' right to place items on the agenda of general meetings.

Regarding board election, a wide variety of voting practices can be observed. A majority of jurisdictions have established majority voting requirements for board elections, usually for individual candidates (i.e., not for slate). In the United States, the Delaware Law's default rule is plurality voting, although companies may provide for cumulative voting. While about half of other jurisdictions allow cumulative voting, it has not been widely used by companies.

Some jurisdictions mandate a representative of minority shareholders on the board. Seven jurisdictions have special voting arrangements to facilitate effective participation by minority shareholders.

In Italy, at least one board member must be elected from the slate of candidates presented by shareholders owning a minimum threshold of the company's share capital.

In Israel, it is recommended for initial appointment and required for reelection that all outside directors be appointed by the majority of the minority shareholders. Moreover, initial appointments must be approved by the majority of the minority shareholders.

Brazil, India, Portugal, and Turkey have also established special arrangements to facilitate the engagement of minority shareholders in the process of board nomination and election.

In the United Kingdom, the Financial Conduct Authority published a rule in May 2014 that provides additional voting power to minority shareholders in the election of independent directors for a premium listed company where a controlling shareholder is present (“dual voting mechanism”). It requires independent directors to be separately approved by both the shareholders as a whole and the independent shareholders as a separate class.

A majority of the 49 mapped jurisdictions set out general requirements or recommendations for board member qualifications. Some jurisdictions give more emphasis to the balance of skills, experience, and knowledge on the board, rather than on the qualifications of individual board members.

Regarding qualification of candidates, 36 jurisdictions set out a general requirement or recommendation for board member qualifications. For example, Singapore's code states that the board should comprise directors who as a group provide core competencies such as accounting or finance, business or management experience, industry knowledge, strategic planning experience, and customer-based experience or knowledge.

Some other jurisdictions set out a requirement or recommendation only for certain board members, such as independent directors (in nine jurisdictions), members of audit committees (in nine jurisdictions), or chair of the board (in one jurisdiction).

At least 26 jurisdictions require or recommend that some of the candidates go through a formal screening process, such as approval by the nomination committee.

In the United Kingdom, it is recommended that nomination committees evaluate the balance of skills, experience, independence, and knowledge on the board and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment.

In Chile, the Corporations Law requires that candidates for an independent director provide an affidavit stipulating their compliance with the legal requirements in the same article.

In Turkey, large listed companies must prepare a list of independent board member candidates, based on a report from the nomination committee, and submit this list to the securities regulator for its review.

Requirements for disclosure of information to shareholders on candidate qualifications is still lacking in some jurisdictions, but 82 percent of the 49 mapped countries now either have regulatory or code requirements about candidate qualifications—although with significant variations regarding more specific requirements.

The quantity and quality of information that must be disclosed to shareholders varies significantly among jurisdictions. About half of the mapped jurisdictions require information regarding the qualifications of candidates and the relationship between candidates and the company. In some jurisdictions, even the names of candidates are not always provided to shareholders before the general meeting.

However, as much as it is the shareholders' prerogative to elect the board, it is most often the board itself that is responsible for the nomination process, although in Sweden and Norway a particular external nomination committee process is in place—with the nomination committee being composed by members representing the three to five largest shareholders (plus in Sweden also the chair of the board).

Basic Board Structure and Independence

One-tier board systems are most common, but a growing number of jurisdictions allow both one and two-tier structures.

Different national models of board structures are found around the world. One-tier boards are most common (in 22 of 49 mapped jurisdictions), but a growing number of jurisdictions (13) offer the choice of either single or two-tier boards, consistent with EU regulation for European public limited-liability companies (Council Regulation (EC), 2001). Ten jurisdictions have exclusively two-tier boards that separate supervisory and management functions into different bodies.

Three countries (Italy, Japan, and Portugal) have hybrid systems that allow for three options and provide for an additional statutory body mainly for audit purposes. Italy and Portugal have established models similar to one-tier or two-tier systems in addition to the traditional model with a board of statutory auditors. Japan amended the Company Act in 2014 to introduce a new type of board structure—a company with an audit and supervisory committee—besides models providing for a board with statutory auditor and a company with three committees.

Limits on the maximum size for boards are rare, existing in only 10 jurisdictions with ceilings ranging from 5 to 21. Thirty jurisdictions require or recommend a minimum board size of three or five (seven for large companies in Chile and 12 for the companies with two-tier boards in Norway). For two-tier system management boards, only China (19) and France (7) establish a maximum size requirement, while 10 jurisdictions set a minimum size requirement (five in China, three in Brazil, Hungary, and Latvia, two in Italy and Indonesia, and one in Estonia, France, Germany, Poland, and Slovenia).

Three-year terms for board members is the most common practice while annual reelection for all board members is required or recommended in seven jurisdictions.

The maximum term of office for board members before reelection varies from one to six years (most commonly three years). There are no compulsory limits on the number of reelections of board members in any jurisdiction. Annual reelection for all board members is required or recommended in seven jurisdictions. In some of the other jurisdictions, a number of companies have moved to require their directors to stand for annual reelection.

In the United States, for example, while Delaware law and exchange rules permit a company to have a classified board which typically has three classes of directors serving staggered three-year board terms, many companies have adopted annual reelection and the classified board system has become less prevalent.

In Hong Kong, one-third of the directors are required to retire from office by rotation at each annual shareholder meeting.

The recommendation for boards to be composed of at least 50 percent independent directors is the most prevalent voluntary standard while two or three independent board members are more commonly subjected to legal requirements. Some jurisdictions link the board independence requirement with the ownership structure of a company.

Despite differences in board structure, almost all jurisdictions have introduced a requirement or recommendation with regard to a minimum number or ratio of independent directors. Six jurisdictions have established binding requirements for 50 percent or more independent board members for at least some companies.

However, it is far more common for calls for the majority of board members to be independent to be limited to recommendations on a comply-or-explain basis.

Japan amended the Company Act in 2014 and introduced a more stringent disclosure requirement than the normal comply-or-explain approach, requiring companies with no outside director to explain in the annual shareholders meeting the reason why appointing one is “inappropriate,” as well as to explain that reason in the annual reports and the proxy materials of the shareholder meetings. Moreover, Japan introduced a Corporate Governance Code in 2015 which recommends that companies appoint at least two independent directors on a comply-or-explain basis.

Six jurisdictions link board independence requirements or recommendations with the ownership structure of a company.

Nearly two-thirds of the jurisdictions with a one-tier board system require or encourage the separation of the board chair and the CEO.

While only 30 percent of jurisdictions with one-tier board systems require the separation of the board chair and CEO, it is encouraged through code recommendations or incentive mechanisms in an additional 40 percent of jurisdictions. Eleven jurisdictions require and 13 jurisdictions recommend the separation of the two posts in comply-or-explain codes.

India and Singapore encourage separation of the two posts through an incentive mechanism by requiring a higher minimum ratio (50% instead of 33%) of independent directors on boards where the chair is also the CEO.

In Israel, a separation may be waived subject to a special majority of two-thirds of the minority approval, or if no more than two present of all shareholders objected to such nomination.

Some jurisdictions with two-tier boards (such as Russia) also allow executive directors to serve on the supervisory board, but in these cases, too, the CEO cannot serve as chair.

National approaches on the definition of independence for independent directors vary considerably, particularly with regard to maximum tenure and independence from a significant shareholder.

Regarding the definition of independence, typical criteria include a combination of: (1) not to be a member, or an immediate family member of a member, of the management of the company; (2) not to be an employee of the company or a company in the group; (3) not to receive compensation from the company or its group other than directorship fees; (4) not to have material business relations with the company or its group; (5) not to have been an employee of the external auditor of the company or of a company in the group; (6) not to exceed the maximum tenure as a board member; and (7) not to be or represent a significant shareholder (IOSCO 2007).

The legal or regulatory approaches vary among jurisdictions, particularly with regard to independence from a significant shareholder and maximum tenure. While most jurisdictions' definitions of independent directors (80%) include requirements that they be independent of substantial shareholders, the shareholding threshold of substantial shareholders ranges from 2 to 50 percent, with 10 to 15 percent the most common.

Another significant variation occurs with regard to maximum tenure: 26 jurisdictions set a maximum tenure as an independent director, varying from 5 to 15 years (with the mode at 8–10 years). At the expiration of the tenure, these directors are no longer regarded as independent (in 19 jurisdictions) or need an explanation regarding their independence (in seven jurisdictions).

Only China and some European countries have requirements for employee representation on the board. No jurisdiction prohibits publicly listed companies from having employee representatives on the board. Twelve EU countries plus China have established legal requirements regarding the minimum share of employee representation on the board, which varies from one member to half the board members, with one third being the most common. Jurisdictions that require employee board members usually have two-tier boards or allow for one- and two-tier board structures.

Board Succession Management

The difference between succession planning and succession management is basically that with the latter you not only have a plan but also have assigned responsibility for the various parts of the plan as well as having defined targets and milestones that should be met in execution of the plan.

Succession management is a new strategic theme with changing agendas, target groups, and interdependencies. Its priority has risen to the top of the strategic agenda since the financial crisis in 2008.

The 2008 financial crisis intensified the debate around a number of key issues. There has been both a higher demand and a greater supply of more transparency and stakeholder dialogue. We have seen tighter and stronger risk management and control procedures. Shareholder involvement has grown—from the VCs and PE firms to the institutional investors. Stewardship codes have been put in place in a number of countries, governing the relationship between the investors and the boards. We have also seen much tougher regulations in some industries (e.g., finance) with the implementation of, for instance, the Dodd-Frank Act in the United States and the CRD IV, the Mifid, and the Shareholders Rights directives in the EU. Further, new themes around technology, cybersecurity, and social media have risen over the board horizon and are demanding increasing focus from the boards—a real game-changer as these are areas where the majority of board members do not feel naturally at home, and where we will see a drive for younger, technologically agile board members. And finally, we have seen a stronger focus on performance, organizational issues, and talent, inside and outside the boardroom.

All of this has meant quite a few consequences for the boardroom. Boards in general are becoming more international, gender diverse, and smaller in size. We see more clear limitations as to how many board positions one individual can take on. There is a continued debate around tenure, reelection, and when to retire—as well as a growing push for board effectiveness review and for external assessment. This means that new board profiles are entering the boardroom, as mentioned earlier—but also that we see closer external scrutiny around key appointments and planning processes.

Building a Fit-for-Purpose Board

In the boardroom, succession management is about building and maintaining a fit-for-purpose board. Fit for purpose means a board that in its composition and inner dynamics corresponds to the company's current and foreseeable future:

• Strategy
• Market conditions
• Financial state
• Regulatory environment
• Ownership structure
• Values, vision, and mission

So how is a fit-for-purpose board built?

First you analyze: megatrends; industry trends; specific external challenges and opportunities; specific internal challenges and opportunities. These are all factors which are determinant for the company's strategy and subsequently for the comprehensive board competency map that follows from that.

Second, you evaluate: current board's competencies; character; chemistry (with one another) as you want to make sure that new candidates make a proper fit. It's not about building a board that agrees on everything—constructive disagreement is usually very value-adding—but more so about building a board that does not necessarily have to disagree over everything from approval of the minutes from the last meeting over succession planning to the core of the company's purpose and strategy.

Third, you look for possible opportunities for change: internal opportunities (e.g., in relation to succession of the chair or of a committee chair) as well as external.

Finally, you look at the requirements for the future board: governance requirements; functional requirements; capacity; diversity; tenure; independency; background; match.

The truly proactive board works with this on a continuous basis, making sure that the company's strategy and lifecycle status is always matched by its board's competencies. A thorough, robust, annual board evaluation, preferably facilitated by an independent, external facilitator, is one of the key components for success in this.

If wanting to not just build a fit-for-purpose board, but a truly world-class board, you could add that the following components need to be in place: the right focus, the right people, the right mechanics, and the right behaviors.

You could sum up these four components as follows:

• The Right Focus is about an appetite to enhance performance, not just provide oversight, as well as clarity and alignment on the role of the board. The right focus is also to have a balanced focus across all key deliverables (strategy; performance oversight; succession; stakeholder management; governance/risk).
• The Right People would possess all the capabilities required given the board's role and challenges, and display well-documented diversity of experience, thought, gender, age, and nationality. Further, the board should be as big as necessary, and at the same time as small as possible. And finally, directors should have the right “character” as well as “competence” (see above).
• The Right Mechanics is about having the right agenda with the right rhythm, as well as sufficient information (and information channels) to ensure real understanding of all opportunities and issues. It is also about exhibition of effective board management—obviously by the chair but certainly also by the committee chairs. And the right mechanics is also about maintaining focus on building a high-performing team, which is much easier said than done. Boards are in that sense just like national teams in sports—most often they don't train or practice much together but only meet to perform or play matches but still they are expected to show just as much team spirit as the daily club teams—or in corporate life, as the executive management team.
• The Right Behaviors on the board relates to the directors' ability and will to put the company before themselves. It is also relating to keeping an open, committed, and constructive engagement from everyone, or you could say, maintaining an atmosphere of mutual respect. Every director should definitely also possess a very high EQ as well as IQ—which is a factor that should not be underestimated, but unfortunately often is. EQ is often reflected in the director's ability to ask the right questions and remain open for new input—maybe contrary to the role of an executive management team that often is measured by their ability to quickly make the right decisions and provide the right answers. Finally, the right behaviors also encompass the willingness to define and uphold “safety values” among the board members to surface and address red-flag issues—no matter what uncomfortable feelings that may result in.

The Hot Topic of Diversity on Boards

When talking about diversity in a board or executive leadership context, we usually mean “the accessibility to and application of several different knowledge domains—simultaneously,” and hereby we mean the unique combination of experience, knowledge, and perspective that together form the diversity and the difference from all other unique combinations of the same factors. Every unique combination adds up to a specific identity.

Neuroscience has long known that, already as infants, humans are programmed to favor the sounds, objects, smells, toys, faces, and so on that we are most exposed to. It is the recognizability that attracts us. And at the same time—still at the infant stage—we are genetically preprogrammed to fear separation (from the known and safe) and to perceive meetings with strangers as the worst thing imaginable.

Yet, despite this apparent biological imperative, when it comes to “real life” and specifically business, homogeneity in a team generally means that we do less and poorer research, that alternatives are considered and discussed less frequently, that our decisions are made on a relatively less informed basis and (with a self-perpetuating effect), and that the sense of group affiliation becomes more important than the result itself. While our basic instinct will normally drive us toward the recognizable (homogeneity), we can be our most productive and efficient when we are dealing with the unknown and the unexpected (heterogeneity).

While homogeneity is thus a strong foundation for resoluteness, security, and the ability to execute (strong qualities in crisis situations), heterogeneity on the other hand provides the most solid basis for innovation and risk management.

Productivity is normally influenced by two factors: specialization (i.e., the concentration of domain-knowledge) and a focus on the predominant domains. It is the complementarity that is critical and as such provides the best starting point for a high coefficient of utilization and thus a high level of productivity.

Innovation depends on the “invention” of new knowledge domains as well as on a continuous development of the existing domains—and not least on a variation of the applied domains. This forms the foundation for both exploration and utilization—and hence also for innovation.

Several academic research results have proven that:

• Diverse teams have a greater probability of staying within budgets.
• Diverse teams have a greater probability of keeping deadlines.
• Diverse teams outperform heterogeneous teams on overall economic and financial results.
• No knowledge domain should be represented by more than 70 percent within a team.

Why is all of this particularly relevant and important when talking about boards? Because you cannot improve board effectiveness in the same way that you would normally try to improve employees and management teams as they do not work together on a daily basis.

In academic research, the interest in diversity on boards has typically concentrated on two elements: (1) gender diversity and (2) diversity between executive directors and nonexecutive directors. However, researchers have often, despite very clear findings of a correlation between greater diversity and better return on equity (RoE), been unable to find proof of causality. It has often been mentioned that numerous factors could all have impacted the research results (including differences in the state of the market between compared years of financial results, differences in size of company research objects, or differences in industry dynamics when comparing results from companies in different industries).

However, a number of companies and organizations have, over the past 10 years, managed to establish and document in a number of international studies that RoE is in fact higher for companies with heterogeneous boards and executive management teams. These studies all come out of hard-facts-focused organizations and companies such as McKinsey & Co, IMF, BlackRock, State Street, Boston Consulting Group, Credit Suisse, Catalyst, Nordea, Copenhagen Business School, and MSCI.

To highlight the results of just one of them—with a very high number of data entries—MSCI ESG Research in November 2015 found that companies with a large share of gender diversity (i.e., more women) in their executive teams and/or on their boards would generate a yearly RoE of 10.1 percent compared to 7.4 percent for the companies without such a level of diversity. The study had numbers from 4,218 companies worldwide in total.

Another MSCI report, from December 2017, found that:

• Women held 17.3 percent of all directorships at MSCI Index companies as of October 2017, up from 15.8 percent last year. Among Developed Market MSCI World Index companies, women held 20.4 percent of all directorships (up from 19.1%), with women at U.S. companies holding 21.7 percent of directorships (up from 20.3%). Women held 10.2 percent of board seats at MSCI Emerging Markets Index companies (up from 9%).
• Over a fifth of the 2,451 MSCI Index companies still had all-male boards and nearly all still had majority-male boards. Seven companies had boards that were majority female with another 21 divided exactly 50-50.
• The majority of companies whose boards had at least three female directors were based in developed Western markets. The majority of those with all-male boards were based in Japan, South Korea, Taiwan, Hong Kong, and China. In several but not all European countries, there were no longer any MSCI Index companies with all-male boards.
• Among sectors, information technology was a laggard with 28.5 percent of companies having no women on their boards, and only 18 percent had at least three while over 40 percent of utilities and financials companies had at least three female directors.

Of the previously mentioned 49 countries mapped in the OECD Corporate Governance Factbook 2019, a large number have been putting measures in place to promote gender balance on corporate boards and in senior management, most often via disclosure requirements and measures such as mandated quotas and/or voluntary targets. Nearly half of the jurisdictions (49%) have established requirements to disclose gender composition of boards, compared to 22 percent with regard to senior management. Nine jurisdictions have mandatory quotas requiring a certain percentage of board seats to be filled by either gender. Eight rely on more flexible mechanisms such as voluntary goals or targets while three resort to a combination of both.

Board Evaluation

The objective of a board evaluation is to provide information of board capabilities, competency, and skills for each position as well as to assess the match between current board members and specific requirements when taking into consideration the company's strategy, goals, and values. The goal will usually be—by including a 360-degree element—to receive a benchmark for the board potential, an input to the match between future strategy and present competencies, and recommendations for further development in order to meet the future corporate governance and board leadership requirements.

A non-exhaustive overview of the components of a best-practice model for board evaluations includes the following:

• First, the evaluation should be based on a systematic qualitative and quantitative assessment process. The assessment should be based on strategic needs with future skill requirements, not just of past success.
• Preliminary online survey to be concluded by all board members, and the members of the executive committee. As mentioned, questions of both quantitative and qualitative nature, typically consisting of 25–40 quantitative questions and 10–20 qualitative questions.
• Structured 1-on-1 in-depth interviews of all executive as well as nonexecutive directors, to improve the accuracy of the evaluation and to facilitate the benchmarking of the board members both internally and against the market. Members of the executive committee who are not on the board should only be surveyed for their input on the board, not to be surveyed themselves.
• The evaluation should focus on the specific factors which best support the company and its board to meet future strategic objectives.
• Findings to be cross-examined and evidenced through 360-degree reference taking (among the evaluation participants, see above). All board members to score themselves as well as all other board members, and all data from these scorings to be used as the framework for the qualitative interviews.
• Individual assessment of functional and industrial competences, personal strengths and weaknesses, ability to meet future challenges, potential for the future, as well as key development needs. The findings to be collectively mapped and outlined individually.
• Plotting charts visualizing the board member's position in relation to the whole team.
• Constructive and developmental feedback to each board member with clear value outcomes.
• If conclusions find that the board needs specific assistance on certain areas (e.g., development and implementation of action points, onboarding, board dynamics, governance structure, etc.) or if the board needs amendments, alterations, or additions to the skills and competencies at hand, you could often with advantage seek external advice for this part as well.

Summing up, the following items ought to be included in the evaluation:

• The board's role, structure, and areas of responsibility
• The board's involvement with company strategy
• Board composition, including a competence mapping against company strategy
• The chair's, vice-chair's or senior/lead independent director's, and committee chairs' exhibition of board leadership
• Board and committee meetings format and agendas as well as committee leadership
• Materials, reports, and support available to the board
• Structure, systems, mechanisms for governance, control and risk management
• Individual contributions by board members with a specific focus on competencies and value-adding contributions
• Board dynamics and effectiveness
• Collaboration with executive management
• Succession planning, HR policies, development of managers and employees, remuneration, compensation, and benefit policies
• Onboarding and continuous training/development of board members

A process outline involving a third-party external facilitator might look as follows:

Step 1: Define

• Briefing on strategy and critical issues
• Briefing on vision, leadership philosophy, and company values
• Alignment of expectations and scope of board evaluation, including definition of critical success factors
• Preparation of internal communication to all involved board members and executives

Step 2: Assess

• Development of tailored interview guide, including integration of existing evaluation format. Inclusion of both quantitative questions (usually between 25 and 40 Qs) and qualitative questions (usually between 10 and 20 Qs). If you only have quantitative questions, you will miss the opportunity to discover possible misalignment between board members on a number of issues. When including the qualitative questions you will better uncover areas of variations or discrepancies in interpretations, understandings, and priorities on the board's agenda.
• Send out survey to all participants.
• Individual interviews with each board member including 360-degree references.

Step 3: Analyze

• Determination and documentation of each board member's strengths, commitment, and development needs
• Team evaluation of existing fit between company strategy and required competencies versus actual competencies
• Identification of opportunities to leverage internal resources for greater board dynamics and effectiveness
• Possible participation at one board meeting as well as committee meeting(s)

Step 4: Report

• Recommendations for team and individual development, including board leadership issues
• Recommendations regarding lacking competencies, board development, recruiting, and individual development needs
• Individual written feedback to each interviewed board member as well as follow-up calls where necessary
• Presentation of report and findings to chair and full board (and governance or nomination committee and/or owner representatives in regard to the chair)

Step 5: Execute

• This step should include key targets and a milestones timeline set out for the development and implementation of action point regarding, for example, onboarding, board search, board dynamics, governance structure, and so on.

Board Recruitment

In our most recent Global Board Survey 2019 (by InterSearch and Board Network) with 1,317 Chairs and NEDs from 64 countries as respondents, we saw 69 percent confirming that their own network is still one of the primary sources for identifying new board members while 33 percent also mentioned executive search firms (headhunters) and another 28 percent named other trusted advisors as one of their preferred channels for attracting new directors.

So, when there is still talk about “the old boys' network,” it is not just a myth. The danger behind this is obviously that we either consciously or unconsciously base our assessment of other people on bias and personal preferences (i.e., how much people resemble ourselves). This may provide a fine basis for composing a board that is easy to manage and participate in, but it also poses the danger of leaving too many competency bases uncovered. If the board for instance is composed solely by 60- to 70-year-old males with a financial and/or engineering background from within the same country, how would they perhaps deal with potential issues like cybersecurity attacks; environmental disasters; crises; disruptive innovation and organizational transformation; takeover bids; regulatory investigations, and so forth? And even when they might think out of the box regarding possible candidates, often they end up with the famous A-candidate who could potentially shed some celebrity light over the board, but much rather they should go after the one who is truly interested in spending time and adding value to the board and the company.

When looking closer, we saw a clear correlation between the ownership structure and how board recruitment is done. Taking advantage of executive search is absolutely the preferred choice by most listed companies across the globe and is also highly liked by private equity-owned companies, where owner-held companies and family businesses tend more to use their own network. The most diligent boards go for the truly specialized board search firms that will not just go through their usual database but do a thorough competency and fit-for-purpose search as well as provide tailor-made governance advice (or at least firms with a dedicated and proven board practice); there are not many, but you can usually find at least one or two of those firms in every country.

Vetting of Board Candidates

In some jurisdictions it is more common than not to go through as exhaustive a vetting process as you would when recruiting for your executive management team. This includes, for example, any criminal records, tax records, open source records (e.g., press articles), digital footprint, and detailed reference checks from your work on other boards, executive management teams, and/or for clients. Especially the reference checks are getting increasingly more common, but with the growing public interest for and investors' increasing scrutiny on boards there is also a growing tendency to assume full identification between the individual board members and the company (just as the other way around).

Board Candidates' Own Due Diligence

Board members often also carry out their own due diligence. Many are flattered just by the opportunity itself; however, they should not forget that a company's reputation is only increasingly reflecting on all the board members' personal reputation. But without claiming to present an exhaustive list of items you should consider as a potential future board member, here are some of the issues to consider: Who is the chair (if you show me a good board, I will definitely be able to show you a great chair)? Who else is on the board? Can you get access in advance to the company's financial accounts? Its minutes from the latest AGM? The company's by-laws? The board's rules of procedure? The minutes from the board meeting over the past 12–24 months? Is there a directors' and officers' liability policy—with which insurer is it taken out, what is the coverage principle, what is the policy limit, and so on? Do you have the opportunity to meet up with the entire board as well as the executive management team before accepting an offer to be nominated, and so forth?

Conclusion

Finally, a brief guide to onboarding directors:

1. Engage fully. Don't accept a board position that you can't devote enough time to. The company is dependent on you.
2. Exhibit integrity. Do what you say and say what you do. Remember that sustainability is not about meaningless philanthropy, but more about staying in business for the long term.
3. Speak up. Be courageous. Voice your concerns. Share your experience. Contribute actively to the discussions. And remember, common sense is not that common.
4. Lead. Don't be afraid to set the example for the rest of the organization. Beware that the tone at the top is set by the very top: the board.
5. Act timely. Be well prepared, show decisiveness, make changes when needed and without hesitation—also when it comes to changing the CEO.
6. Keep in mind why you were appointed to the board. It was originally all about shareholders believing you could add value. Know your company/trade. And add that value to the board, the company, and the shareholders.

About the Author

Jakob Stengel is Global Head of Board Practice at InterSearch (www.intersearch.org) and managing partner of the Danish member firm, Case Rose | InterSearch (www.caserose.com).

Case Rose | InterSearch is the only Danish executive search firm to specialize in board search and board evaluations. InterSearch consistently ranks among the world's 10 largest executive search firms.

Jakob is a trusted advisor to a vast number of the Nordic countries' top-500 companies. His main clients are publicly listed, private equity-owned, family-owned and government-owned companies. His search experience spans over most industries and functional areas, primarily on board- and C-level. More than 90 percent of his assignments are chairman searches, nonexecutive director searches, board evaluations, and board consulting assignments.

Jakob has co-authored a number of management books, is the editor-in-chief of quarterly magazine Board Perspectives, and is a recognized international media expert and frequent speaker and trainer on the topics of corporate governance, board leadership, and board development.

Furthermore, for three years he was a visiting professor on the MBA program at Copenhagen Business School, and has also for several years lectured on the Executive Board Program at INSEAD—Scandinavia Executive Institute.

Jakob holds a degree as Master in Law (LLM) from the University of Copenhagen, and has completed several executive programs at leading universities and business schools across the world (e.g., Harvard Business School, The Wharton School, INSEAD, Copenhagen Business School, and University of Copenhagen). In addition, he possesses more than 18 years of experience in serving as chairman/nonexecutive director on more than 10 different boards of directors in Danish companies.

Jakob is also the founder and executive chairman of The Danish Professional Directors Association, Board Network (www.boardnetwork.dk), among the founding fathers of The Diversity Council (www.thediversitycouncil.com), and a co-founding partner of Board Mentors (www.board-mentors.com).