A succession of high-profile UK corporate failures has highlighted the potential dangers of flawed corporate governance. Too many businesses, unguided by experienced hands, have sailed into troubled waters, and when this happens to a large organisation such as The Co-operative Group, the stability of the entire economy can be threatened. This is why it’s so critical that boardrooms contain the right mix of skills and experience.
Diversity of skills, not gender
The importance of acquiring a diversity of skills in the boardroom sounds obvious, a real “no brainer”. Yet for a number of years, the theme dominating debate about boardroom makeup has been gender diversity. This has placed pressure on executive recruitment firms to expand their candidate short-lists to include an “appropriate” number of women. Yet the true role of board level headhunters should be to compile candidate shortlists that present a balance of skills and experience. Anything less and they’re not doing their job properly, and certainly not likely to produce a candidate who will serve the best interests of the shareholders.
Loss of shareholder confidence
It is the view of some industry commentators that shareholders must accept a greater share of the responsibility in board level executive recruitment. In his 2012 review of equity markets and decision-making, Professor John Kay examined the reasons behind the evident loss of shareholder confidence in many companies, and he identified a lack of investor oversight as a fundamental cause of the problem. Professor Kay proposed greater engagement between investors and boards, yet if shareholders are to have any “teeth”, they must play an active part in selecting boardroom appointments. In most UK companies, the nominations committee will comprise a number of current board members, and moves to balance this with shareholder representation would certainly help to bring greater commercial focus to the selection process.
Recruitment and selection of NED’s
Selection of appropriate non-executive directors is critical too. In many UK companies the NED selection process lacks the rigour and discipline one would expect to see in executive director recruitment. Yet there is little rationale in failing to impose a more disciplined approach, including formal evaluation of candidates’ experience and expertise, and where appropriate, psychometric testing.
Stronger corporate governance makes for stronger companies
A boardroom that doesn’t include the right mix of expertise and experience won’t be in a good position to prevent catastrophic mistakes from taking place. By evolving the corporate governance framework to allow shareholders to play a greater role in board level recruitment, we are more likely to see the appointment of chair people and non-executive directors who are not afraid to challenge their boards, people more willing to apply pressure where it is needed, and people who may make the daily lives of their fellow board members less comfortable. The presence of such individuals would significantly reduce the possibility of further high-profile governance failures, which would be good news not only for investors and employees, but for the wider economy too.
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