This is the third of a three-article series advocating an “expertise” board selected on the basis of their members’ collective competencies. The first article, entitled “The Case for the ‘Expertise’ Board: Selecting Board Members on the Basis of ‘Competencies’ rather than ‘Constituencies’” in the March 2010 issue of Acredula, gave empirical data supporting the expertise board and discussed basic tenants of corporation law in its support. The second article, entitled “How a Board Should Determine What Expertise and Competencies Are Core ” in the April 2010 issue of Acredula, discussed how a board should determine what expertise and other competencies are core. This article discusses how to address and fill gaps in those core expertise and competencies. The first two articles can be found at www.acredula.com.
The first article advocated that the first step is an agreed strategic direction for the organization. The “agreement” is typically more in the form of the board’s confirmation or ratification of direction recommended by management than a strategy initiated by the board. Only after the board and management commit themselves and the organization to a future strategic direction can they determine the particular expertise and other competencies necessary to achieve that direction. In other words, structure such as board composition should emerge from strategy. Accordingly, an agreed strategic direction must come first.
The second article advocated a gap analysis to:
- Inventory the knowledge, skills, experience, expertise and other competencies present among the current members of the board and management.
- Project the knowledge, skills, experience, expertise and other competencies that are believed beneficial for achieving the agreed future strategic direction. A board and management often need help in identifying the categories of competencies that should be considered, and this is the purpose of this article.
- Compare the current collective competencies with the desired future collective competencies and identify the gaps. This is simply deducting current competencies projected to remain among the board and management from those believed beneficial in the future.
This article discusses how to fill those gaps.
Most states’ corporation laws allow a director to rely, and protect a director from liability to the extent relying, upon:
- Officers or employees as to matters for which the director reasonably believes they are reliable and competent.
- Professionals, such as legal counsel, accountants and compensation experts as to matters that the director reasonably believes are within the person’s professional or expert competence.
- Other directors as to matters for which the director reasonably believes they are reliable and competent, including committees of directors upon which the director does not serve, duly established in accordance with a provision of the articles or the regulations, as to matters within its designated authority, which committee the director reasonably believes to merit confidence.
Accordingly, gaps in expertise and competencies may be filled through the same persons upon whom a board is entitled to rely by:
- Hiring new officers or employees with, or training existing officers or employees to have,
- Retaining as consultants professionals with,
- Retaining new directors with, or training existing directors to have this missing expertise or competence.
Certain expertise and competencies may be most quickly provided by retaining professionals as consultants. This is especially true with tactical matters, such as familiarity with technology, gathering peer data, evaluating the advisability of non-repetitive transactions.
Training existing directors, officers or employees may more quickly result in acquiring missing expertise or competence than recruiting and retaining new directors, officers or employees. John Trott, former CEO of Hochheim Prairie Insurance Company, made the best case for training in a seminar a few years ago:
I learned the value of training when I was a high school football coach in Texas. High school football is important to Texans. And being a coach of a public high school, the players that showed up at the first practice were the only players that we were going to have. The only way we could make ourselves a better team was education and training. The same is true for running an insurance company. The best way to make us a better company is education and training.
Recruiting and retaining new directors, officers or employees usually requires more time. Accordingly, an organization should go to the market to recruit expertise or competencies that are strategically important to the business or the organization. Because the role of a board is to delegate authority for management to execute, and to oversee the execution of that authority, the first step may be to train or hire an officer or employee to be able to execute the delegated authority, and then train or retain a board member to be able to oversee the execution of that authority.
In conclusion of our three-article series, governing boards are not only the first line of defense against mismanagement and fraud, but also the best line of offense for good governance. Recent failures over the last dozen years show that all organizations can do a better job selecting their board members. Doing so, upon the basis of the collective expertise and competencies of the board as a whole, may reinvigorate confidence in corporate America.