In today’s corporate governance environment, board evolution and competency building for public companies is the responsibility of the Nominating Committee. In private companies, however, board evolution can be a more ad-hoc process often left to the CEO, who formally or informally additionally fills the role as chair. In many cases, venture-backed or private-equity backed companies wind up over-represented by investors and under-represented in the operational skills needed to help the CEO with difficult business tradeoffs. But there is hope — by following these four steps to a better board, any CEO can surround themselves with a cadre of board-level skills to help them in maximizing the company’s success and shareholder return.
Determine the Desired Competency Profile
The first step is to determine what skills the board, in aggregate, must possess to assist the company on its path to success. Is it an all-VC board? If so, adding some operational talent will be invaluable. Has the board been together a long time with no infusion of new blood? You may want to add board members who will help the company “break out of the mold”. Board members fall into habits as well as employees, and while it is important to have some board members who can provide historical context, it is equally important to add new members who are looking through the front windshield and the new horizon to come, not just the rear-view mirror.
The important point in these steps to a better board is the notion of “in aggregate”. No one director can or should have all the needed skills — but the sum total of the competencies possessed by the board should align with the needs of the company.
Once you have determined the skills the board needs in aggregate, the refinement is to quantify the number of units of those skills that are necessary for appropriate coverage. For example, you may want three “units” of financial expertise, two “units” of international experience, and two “units” of sales expertise. By focusing on skills and “skill units”, the approach to board competency building becomes non-confrontational. This analytic and fact-based process should be divorced from personalities or personal attacks.
Once you have determined the skills and the number of units of these skills, you should place these competencies along the rows of a table, and add a column that indicates the minimum number of “units” of each skill the company needs. Only after you have agreement with your board on what the categories and the minimum number of units should be, do you proceed to the next step.
Map Existing Board Members to the Desired Skills Profile
Once you have determined the skills and the skill units you need on your board, it is necessary to map these competencies to the existing board members, so you can identify the gaps between the desired and the actual aggregate skills profile. This is done simply via a matrix which places skills on the rows, and directors across the columns and fill in a “1” if the director has the needed competency. While this process can get very sophisticated (e.g. “2” for “very expert”, “1” for “somewhat expert”), finer granularity than “0” and “1” is much more likely to lead to argument and potential disagreements and bruised feelings, none of which will contribute to the process. At the end of the second of these steps to a better board, you will have a matrix that looks like this:
From this chart it is easy to see that, on this particular example, there is a gap in the number of skills needed by the company in the areas of “Sales Expert” and “International Experience”.
Determine the Profile(s) Needed to Fill the Gaps
As will be seen from the simple example above, there is no one answer for what the competency profile for any individual director should be. Given a completely blank slate, the same number of skills could be achieved by having three board members with financial skills, two with sales, and two with international skills, for a total of seven board members. An alternate configuration would be to have two board members with financial expertise, one with financial and international expertise, and another with sales and international expertise – for a total of four board members who fulfill the desired board competency profile. In some cases, it will become obvious that some members may need to step down in order to make room for needed skills. In other circumstances, the board may simply need to expand in order to add the needed skill. But the use of an analytic process separate from personalities typically leads to a relatively stress-free and balanced set of steps to a better board.
The final of the four steps to building a better board is perhaps the hardest: recruiting interested and qualified directors to fill the gaps. But by following a metrics and analytic approach, you should be able to have the full support of your current board, and by understanding the skills and skill units the company needs, you will have greater flexibility in recruiting outstanding director(s) to fill the desired aggregate skills profile.