Executive Corner This is a fortnightly column featuring leaders in the executive search industry New generation of directors transforming the boardroom by Marc-Yannick Ceyton Companies are turning to recruitment specialists to find top talent Following the recent series of international financial scandals, many companies have realised the need to shake up their boardrooms and tighten up their corporate governance practices. Since companies are now under far greater scrutiny, the tougher regulatory climate means they must find high-calibre, well-qualified and active individuals to take on board responsibilities. While it is still common practice to nominate directors from within a company, many businesses in Hong Kong and China are starting to follow the approach seen internationally of recruiting board-level expertise with external assistance. Andrew Tsui, managing director of Korn/Ferry International, says that this alternative approach, influenced by best practices elsewhere, makes more sense than ever. However, in a business environment like Hong Kong's, where family influence or the interests of a limited number of controlling shareholders can often hold sway, change has been gradual. However, one important factor has been the Hong Kong Stock Exchange stipulation that a company must now include three independent directors on its board, one of whom must be a qualified accountant. As a result, there have been numerous such appointments in the past twelve months and unprecedented changes at the top of many organisations. These changes are not always to meet specific, externally imposed regulations. In some cases, board members have simply taken on new roles within the existing framework. Often, though, it has proved necessary to recruit newcomers to fill specific skill gaps or to find people who can provide additional expertise in financial, technical or ethical matters. In the case of companies in China looking to list or develop markets overseas, it has become important to recruit directors with international standing. They can provide vital know-how and add credibility to the company's expansion plans. All directors must now be hands-on, dedicated and active Available candidates In order to maximise the chances of attracting the right candidates, Mr Tsui indicates there are certain advantages in turning to an external consultant for assistance. Korn/Ferry, for example, has an international database of high-calibre individuals who have expressed an interest in joining boards. Candidates with the right mix of qualifications and expertise can be found for any available board position, making it unnecessary to rely on personal contacts or word of mouth alone. Typically, this database will include former CEOs, finance directors and professionals with a wealth of experience in different industries. If appointing a new director, the first step is to create a nomination committee that establishes with or without external consultation which skills are required. Candidates are then listed in order of preference and are contacted by the most appropriate intermediary. Mr Tsui stresses the importance of narrowing the list to candidates "who are not only qualified but may also be willing". He notes that extensive research undertaken by Korn/Ferry has found any number of reasons why candidates may decline the offer of a directorship. Among these is the impact that various high-profile corporate failures have had on corporate governance worldwide. "The outcomes and personal investment of time have made qualified individuals more discriminating in their acceptance of directorships," says Mr Tsui. In his opinion, this has had more impact on the lesser-known companies than on the established firms. Many of the organisations affected are now being forced to disclose their shortcomings in this area. Furthermore, while there are still many directors who sit on several boards, which are preferably non-conflicting, the increased involvement, time demands and greater risks are making this practice far less common. Hands-on approach One of the greatest challenges when recruiting external directors is having to disclose and explain all the company's activities. Incoming directors should be given in-depth orientation about current businesses, the key issues, and the challenges faced financially as well as for human capital. All directors must now be hands-on, dedicated and active. They can no longer regard a seat on the board as a position suitable for someone looking to be inactive. Mr Tsui emphasises that many directors are now subject to ongoing assessments as to their value to the company. This scrutiny obviously means performances must be up to scratch. Remuneration must also be fully earned by monitoring management, providing guidance and recommending strategies. In this environment, it is imperative for a board to work closely with the company's management team to review business performance, mitigate risks and make the most of opportunities. Directors must counsel, probe and steer their respective companies in such a way as to ensure corporate success and benefits for the shareholders. "Standards and rules do not guarantee independence, but they do establish basic criteria that can be enforced," says Mr Tsui. Boarding instructions More companies seeking board directors with the help of expert external assistance Specialist recruitment consultants maintain databases with details of eligible candidates Appointees must fully understand the commitment required in accepting a board position Incoming directors must receive full orientation and regular performance assessments Taken from Career Times 9 September 2005 Your comments are welcome at [email protected]