A strong board of directors is the cornerstone of many companies and is the group charged with the oversight of the corporation on behalf of the shareholders. In general, a Board is responsible for hiring, evaluating, and compensating management. They also assume oversight of corporate strategy as well as financial reporting, capital structure, and compliance. An effective relationship between the Board and management can have a very positive impact on the company.
The importance of building a high-quality Board is, therefore, critical. A combination of factors must be weighed to determine the most optimal board makeup. Relevant skill sets, prior board experience, and diversity are unusually key considerations. There’s also a need for the chemistry between directors that can’t be forced—but should be considered and cultivated.
The Chairman or Lead Director should have particular expertise and strong respect from the other directors and management. Not only should the Chairman have a thorough knowledge of the company and its industry, he or she should also have previous experience on boards of directors. Given that this person is the primary liaison with the Chief Executive Officer, the Chairman should also have strong mentorship abilities.
The three major board committees are Audit, Compensation, and Nominating/Governance. Constructing committees with effective members is a significant part of board building because committees do crucial work in at least three key areas. Members should have appropriate skills, experience, diversity, and chemistry with each other. Committee work should be shared with the rest of the Board for transparency.
Whether as part of a committee or the larger Board, each member must work to establish a productive atmosphere. If board building has been done correctly, every person should represent the company’s workforce as well as the markets that it operates in. This diversity should be reflected in the attitudes and backgrounds of board members and foster productive discussion where disagreement doesn’t lead to conflict. If an entire Board has a similar mindset, it hampers the creation of solutions and dilutes the value of the skill sets that every member brings to the table.
Jonathan F. Foster
Founder & Managing Director – Current Capital Partners LLC