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This article discusses the current challenges in recruiting independent board members, including regulatory changes, eroded investor confidence in corporate governance, and a climate of uncertainty. It also explores the changing role of directors and the qualities sought in new board candidates. The article highlights hurdles to recruitment and offers strategies for broadening the pool and prioritizing the search process. It concludes with comments on other trends in director compensation, leadership structure, and governance practices.
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Challenges in Recruiting Independent Board Members Andrea Redmond Russell Reynolds Associates March 10, 2003 RUSSELL REYNOLDS ASSOCIATES
Current Situation • Regulatory changes • Investor confidence in corporate governance is severely eroded and public disdain widespread • Economic challenges • General climate of uncertainty RUSSELL REYNOLDS ASSOCIATES
The Changing Role of the Director • Time commitment is significantly rising • Complexity of the role is increasing • Greater shift from approving strategic and operational development to contributing to it • Director liability appears to be increasing • Honor/appeal of being a director is decreasing • Intolerance for inactive directors • Greater public scrutiny RUSSELL REYNOLDS ASSOCIATES
The New Board Candidate • The traditional CEO • Financial experts • Turn-around or crisis management experience • International experience • Strategy expertise • Track record of operational excellence • Women & Minorities • OUT – professional directors, CMO, CTO, “new economy” CEO RUSSELL REYNOLDS ASSOCIATES
Client Concerns • Analytical approach to director recruitment required • Candidates must have impeccable ethics • Candidates must have not only the time to for the directorship, but also a passion & enthusiasm for the role RUSSELL REYNOLDS ASSOCIATES
Hurdles to Recruitment • Time restrictions • Limited CEO quality • Operating performance issues • Rising scrutiny of D&O insurance RUSSELL REYNOLDS ASSOCIATES
Recruiting Strategies • Broaden the pool • Target senior operating officers such as presidents of global business units • Do not overlook the CEO of a smaller company • He/she could have come from a much larger business • He/she may have an impeccable track record • Be open to considering success wherever it is found • Look at women and minorities • Do not chase the obvious candidates along with everyone else RUSSELL REYNOLDS ASSOCIATES
Recruiting Strategies • Directors are recruited most successfully when both the CEO and the Nominating Committee commit focused and prioritized attention to the search • Demonstrate the importance of the company’s governance to prospective directors through action • Do not let the search languish between board meetings RUSSELL REYNOLDS ASSOCIATES
Comments on Other Trends • Director compensation • Lead Directors • Separate Chairman & CEO • Director evaluation • Audit Committee advisor • CEO succession planning • Executive compensation RUSSELL REYNOLDS ASSOCIATES