It was business as normal until the end of Rocks Construction’s fall quarterly board meeting, when the CEO announced that he was retiring in 18 months. This came as a surprise because the last time the CEO’s retirement was discussed, the actual event wasn’t planned for another 3-5 years.
The CEO followed up, stating that discussions about his replacement would happen at the next board meeting. After a short silence, a new external director spoke up and said the succession conversation needed to start now. This director had seen short-notice CEO successions fail in other industries and knew that if they didn’t start now, the company could be in danger. So, the board immediately went to work finding strong candidates and were able to place the new CEO five months prior to the outgoing retirement for a smooth transition.
There are multiple challenges facing the construction industry today that make it easy for leaders to focus their attention on the near-term. Finding time for strategic planning competes with fighting the fires of the day; long-term planning, like succession, can take a back seat. A company’s board – whether advisory or fiduciary/legal in nature – can be the key to helping executive teams maintain a strategic perspective in the turmoil of day-to-day activities. The challenge is ensuring that your board has the right people and right perspectives to serve the company’s long-term needs.
A survey conducted by KPMG asked respondents just how satisfied they were that their board had the right combination of skillsets, backgrounds, experiences, and perspectives to probe management’s strategic assumptions and to help the company navigate an increasingly volatile and fast-paced global environment. Forty-nine percent said they were not satisfied, 15% said they were somewhat satisfied and only 36% were satisfied. As a result, 61% see a need for greater diversity of viewpoints and backgrounds on their board.1
What do We Need?
There are multiple factors to consider when increasing your board’s diversity. It’s more than gender and ethnicity. It’s finding people with different backgrounds, experiences and perspectives. Diversity can mean any of the following (not all inclusive):
- Ethnicity, gender, age, race, cultural background
- In-depth knowledge of company’s industry
- Financial literacy
- Leadership and corporate governance experience
- Technological expertise
- Enterprise risk evaluation/mitigation experience
- Talent management competencies
- Marketing skills
- Regional/international business experience
The key to a high-performing board is getting the right people in the room to support your organization’s strategic vision. In light of this, what is the best way to determine the type of directors needed in your board room? The 2016-2017 NACD Public Company Governance Survey reported that skills gap analysis of the board (81%) and individual director evaluations (73%) are the most effective mechanisms to utilize. There are four broad steps you can take to complete a skills gap analysis, and it starts with your company’s strategy. They are:
- Identify your strategic objectives: Write down your company’s current challenges, business priorities and goals for the next 3-5 years. For example, let’s say your company (a general contractor) has been focused on one market over the past 10 years. In your annual strategy session, your executive team has decided that you need to diversify into another market (health care facilities) to reduce risk in the future by being in multiple markets.
- Define competencies: Now, define the competencies, skills and experience needed to address your identified strategic objectives. For our example, you’d want someone with construction experience in healthcare facilities. You may also want someone who is in the healthcare industry to gain insight into customer requirements.
- Identify current and needed resources (people): List of all the resources (people) you have available, or would like to have. This includes internal resources, including your executive team, leaders who can be found within the organization, trusted advisors (those people outside of the organization that you turn to for advice when tackling tough decisions), and people you “wish” you had access to (but currently don’t).
- Complete your resource gap analysis: Utilizing a spreadsheet, write out your strategic objectives and competencies along the top, then list your resources down the left side. This will give you a good visual to see how your resources align to your objectives. Your matrix will clearly highlight areas of expertise that are missing so you know what competencies you should focus on when identifying and recruiting new directors.
Finding the Right Fit
Once you’ve identified the skill sets you need, how do you go about finding directors who have the right fit? There are numerous ways to seek out new directors, here are examples of the more popular methods:
- Director search firms
- Personal networking/word of mouth
- Nominees identified by a board committee
- Shareholder suggestion
- Director database (i.e. Directors Registry)2
Regardless of how you go about finding new directors, a competency-based search will help you find the best directors to support your organizational needs. Having a group of directors with a diverse set of expertise and background can exponentially improve your ability to support business continuity and help your company get to the next level.
2 – 2016-2017 NACD Public Company Governance Survey