This is the second installment in this three-post series on the use of expertise boards for corporate compliance. The first post described state corporation law’s encouragement for use of an expertise board. This second post discusses the categories of expertise to consider and the third post will discuss how to address any gaps in desired expertise.
A board can consider numerous competencies in putting together an expertise board. In order to assure some depth as well as structure in the consideration, we recommend that at least the following categories of competencies be considered:
- Business and professional expertise and experience
- Character and demographic suitability
- Personality characteristics and temperament
Business and professional expertise and experience
Our experience is that boards and management need little help in inventorying their current expertise and experience. This is typically done by questionnaire and discussion.
A questionnaire is helpful because it allows each member of the board and management initially to state his or her competencies in his or her own words. We recommend including at least one open-ended question such as, "Do you have any expertise or experience that the organization is not fully utilizing?" We find that almost every board member and many management members believe they have some expertise or experience that is under-utilized.
Discussion is important because it will give context and depth to those initial statements and is especially helpful in identifying under-utilized expertise and experience.
A helpful result is an expertise-and-experience matrix showing in tabular form the expertise and experience of each member of the board and management.
Boards and management may need help in identifying possible desired fields of expertise or experience. The human resource officer or department may be helpful in providing an initial list of possible fields. Boards also should consider fields of expertise and experience considered important by peer organizations. The following is a sampling (but not an exhaustive list) of some fields considered recently by organizations that we have helped:
- Accounting knowledge of financial reporting, accounting principles (including those for accounting for estimates, accruals and reserves), internal controls, record keeping, the auditing process, and knowledge of related considerations and issues;
- Audit committee experience with the operations, role and function of audit committees;
- Board of director experience as a board member of a comparable organization;
- Brand marketing experience as a board member of a comparable organization;
- Corporate governance experience with a comparable organization domiciled in the United States;
- Executive compensation experience with executive recruitment and retention, compensation structures, performance reviews and aligning compensation and incentives with organizational values and performance;
- Financial officer experience as a chief financial officer or in actively supervising a chief financial officer;
- Governmental knowledge of a federal or state agency having jurisdiction relevant to the organization’s business;
- Industry knowledge of one or more of the important business lines of the organization;
- International or global knowledge of relevant markets;
- Investment knowledge of investment best practices of comparable organizations;
- IT experience with information technology systems and developments;
- Large company experience with directing or managing a large and complex organization;
- Legal or regulatory knowledge of legal, regulatory issues and public policy relevant to the business of the organization;
- Merger and acquisition experience in business mergers, including both acquisitions and dispositions, as well as joint ventures and affiliations;
- Operations experience as a chief operating officer or other role in managing the operations of a comparable enterprise;
- Public relations experience in dealing and communicating with the traditional media, social and internet media, public officials, trade associations and community groups;
- Risk management experience in identifying principal enterprise risks to understand whether management has implemented the appropriate systems to manage risk;
- Sales distribution experience with sales distribution models;
- Strategic business planning expertise in the strategic planning process for a comparable enterprise.
Character and Demographic Suitability
There are a number of character and demographic suitability characteristics that should be considered in selecting board members. Again, for organizations large enough to have a human resource department, the HR department can be helpful, especially in conducting criminal records, credit and drug checks (which are becoming more common in director selection). Assuming clearance in those checks, here are some additional character and fitness considerations:
- Contributes to the diversity of people and ideas of the board. We find that the primary goal of diversity should be that of ideas. Those generally come from people of differing gender, ethnicity, geography as well as differing backgrounds, experience and personality.
- Is free of any apparent conflict of interest. A candidate should complete the same conflicts questionnaire or otherwise be screened with respect to personal or economic interests that may adversely affect his or her independent judgment on behalf of the organization.
- Has a reputation for honesty and integrity. Asking for references and checking them is as important as the criminal records, credit and drug checks.
- Is able to ask questions appropriately. One of the most important skills of a director is knowing what questions to ask and when to stop asking questions. This may be reflected by a person’s business or professional expertise and experience. For example experience or expertise in law, psychology, social work, recruiting and even teaching may be indicative of being able to ask questions. This also may be reflected by personality type or temperament. However, it is probably best reflected by the questions asked by a candidate in the selection process. When to stop asking questions may be taught through education of directors.
- Is willing and able to take the time and focus his or her attention on performing the duties and responsibilities of being a director. This includes learning the business model and structure of the organization and successfully committing to prepare for and regularly attend board and committee proceedings.
Personality Characteristics and Temperament
Personality characteristics and temperament may be a factor in selecting board members. For example, a board composed solely of CEOs with extroverted, quick-judging, fact-based personality characteristics may focus too much on decision making and too little on the oversight duties of a board. Over time, a board may want to balance those personality types with personalities of different characteristics or temperament.
Board and committee chairpersons (as well as other members of the board or committees) often find information on the personality types and temperaments of their members to be useful for them to lead efficient and effective board or committee operations. Because of the importance of having directors who have a variety of business and professional experience and diversity in thought and ideas, directors having in common one set of personality characteristics or temperaments should not dominate or frustrate directors having in common a different set.
Although there are many systems for classifying personality and temperament, there are three that are commonly used:
- Myers-Briggs personality type indicators based upon C.G. Jung’s personality types (beginning with either “I” for introversion or “E” for extraversion as to mental focus; “S” for sensing or “I” for intuition for processing information; “T” for thinking or “F” for feeling for the basis of making decisions; and “J” for judging or “P for perceiving” for managing life outside of oneself. The Myers-Briggs Type Indicator or “MBTI” is probably the most recognized and used assessment tool. However, its reliance upon initials for personality characteristics can be a deterrent. Information can be found at www.myersbriggs.org. A guide to the use of the MBTI is the MBTI Manual: A guide to the development and use of the Myers Briggs type indicator (3rd edition 1998) by Briggs Myers, Mary H. McCaulley, Naomi L. Quenk, and Allen L. Hammer.
- Spectrum Development Temperament Model also largely based upon the Jung’s personality types and Meyers-Briggs classifications, but using colors (lavender or purples for introvert or extrovert interaction styles and then blue, gold, orange and green for temperaments). Information can be found at www.spectrumdevelopment.com.
- Clifton StrengthsFinder developed by Donald O. Clifton with the Gallup Organization that identifies which of 34 talents each person possesses. It is not generally based upon Jung’s personality types. Information can be found at http://www.strengthsfinder.com. A number of written guides are available including Now, Discover Your Strengths (2001) by Marcus Buckingham and Donald O, Clifton, Ph.D. for StrengthsFinder 1.0, and Strengths Based Leadership (2010) by Tom Rath and Tim Harter.
Each of the three systems assumes that individuals have preferred ways of thinking, interacting and perceiving the world. There are no “best” or “worst” personality or temperament types.
We find that the Clifton StrengthsFinder 1.0 is the easiest to use if personality characteristics and temperaments are to be a factor for selecting board members because it requires the least facilitation. Candidates can be given the Now, Discover Your Strengths book, which is a quick read. The book gives them access to the StrengthsFinder 1.0 assessment tool over the internet which is a relatively painless process.