Due diligence when appointing a director is a must
ORGANISATIONS must conduct a proper due diligence on potential directors before appointing them – but the latter should do the same. In its most recent Board Appraisal Benchmarking Report, the Institute of Directors in Southern Africa went so far as to state that “board composition probably has the greatest single impact on the future success of an organisation”.
No surprise then that companies should spend enough time and effort on establishing that prospective board members have the right personal qualities, professional qualifications, skills and experience to improve the board’s ability to make the right decisions and ultimately drive the organisation forward.
Not choosing the right people to be directors can be disastrous for an organisation’s performance as well as its reputation.
The basic first step should be to check any prospective director’s qualifications. Doing this would have made the government think twice before appointing the SABC’s Hlaudi Motsoeneng and Ellen Tshabalala… There are many such examples.
Qualification checks are an important first step, but only one of many considerations. Of course, a thorough investigation of the candidate’s experience, skills and expertise also goes without saying. Particular attention should be paid to how he or she would complement existing board members – what he or she would bring to the table, so to speak. At the same time, though, no individual will have all the skills and expertise needed, so it is important to establish his or her willingness and ability to acquire them over time.
Another, yet critical area to investigate is the candidate’s passion and commitment. An important element of this discussion is the time the candidate can make available for board duties, and his or her ability to free up time in a crisis. As a rule of thumb, a modern-day non-executive director needs to commit anything between two and five days a month per board. And let’s not assume that time spent necessarily correlates with the size of the organisation. Smaller and start-up boards sometimes demand an even greater time commitment to compensate for missing executive/ management capacity.
Another aspect of a candidate’s passion and engagement is his or her willingness to bridge the so-called information gap. This gap refers to the fact that non-executive directors will always know less about the organisation than those executive directors who work there every day. Non-executives need to have the ability to use their judgment to ask the right questions and the commitment to develop sources of information about the company that complement board packs. Is the company right for you? So far, so very logical. But the mirror process is equally important, and is frequently omitted in the excitement of being asked to become a director. This is understandable, because joining a board is an enormous milestone and privilege in anyone’s professional or business career. But individuals should be mindful of the fact that a board appointment is actually extremely onerous and carries the risk of personal liability. There is also one’s own personal reputation to consider.
It is thus critical that board candidates take the time to research the organisation from a number of angles.
Consideration must be given as to whether this is an organisation the individual wishes to be associated with, ie understanding whether the organisation operates in a way with which he or she is comfortable, and that its goals and values resonate with him or her. Further examination would be where the organisation fits into its context: is it a leader or a follower? What risks does it face, and what opportunities does it have? What is its growth trajectory and what is needed to get it there?
It would be advisable to interview some of the key people in the organisation, including the chief executive, chief financial officer, other directors and the company secretary, both to deepen one’s understanding of the organisation, but also to form an opinion about their integrity. The second line of inquiry would be to look at the board itself in as much detail as possible. Who is on it, and what skills do they have? What skills would you bring to the table that they don’t have? Does the board have the right mix of people and skills, and do they work well together? Does it have a track record of taking the right kinds of decisions? If the organisation is willing to share them, carefully analysing the results of prior board appraisals would be a valuable exercise to understand the board dynamics and challenges.
Would-be directors should also not forget the consideration of enjoyment; being a director is hard work, but they should be confident it will also be a fulfilling experience.
Directorship is a huge commitment both by directors and the organisations that appoint them. Both parties need to make sure the relationship will add value. Doing so at the beginning, prior to entering into the relationship, will save many tears later.