Addressing Board Composition in a Changing World

Dina Medland, Independent Writer and CommentatorDina Medland, Independent Writer and Commentator with a strong focus on corporate governance and the boardroom writes:

In the bad old days getting into the boardroom was all about knowing someone who was already there. The UK’s corporate governance Code, with its emphasis on independent nonexecutive directors, has assumed an unbiased selection process and recently set guidelines on the need for diversity. Yet it took years for the UK government’s 2011 push to get women into non-executive positions in the boardroom to even begin to look closely at recruitment procedures. Even today, if you search ‘recruitment’ on this whizzy new FRC website, you get stories dating back to 2011 and 2013.

At a time when the focus on the importance of board composition for better business is steadily growing, why is it that the role played by the recruitment process in achieving that successful mix of individuals is still largely ignored? The dual (and costly) offering of providing candidates for boardrooms and also offering evaluation services for said boardrooms is still tolerated, rather than being seen as a clear conflict of interest.

While there may now be a multiplicity of so-called ‘head hunters’ in the UK touting ‘diversity’ as their raison d’être, delving into the dynamics of the role of executive search firms in the process of building boards more fit for purpose remains neglected.

But look: here comes Artificial Intelligence (AI) riding the technology wave and promising all sorts of disruption. It is obvious that it will have a significant impact on recruitment, even if we cannot yet outline how that will unfold. Its effect on the HR function has been both anticipated and absorbed by those who consult on better corporate governance with the inhabitants of boardrooms.

The conversation to date has been about what the latest technology offers HR directors to fulfil their hiring function. But the interesting one is around whether AI will both release HR directors from everyday recruitment drudgery and simultaneously elevate them towards a role that is both holistic and strategic, demanding a seat at the boardroom table.

Considering the reality of many UK boardrooms today, it seems safe to say that despite the level of change we are experiencing in consumer behaviour on the back of technological transformation, there is a major time lag in play.

‘Digital transformation’ as a moniker for technological change has yet to be taken seriously, with all its extended implications for cyber security and data protection as part and parcel of best practice and good corporate governance. It would be logical to expect the recruitment process to be at the forefront of helping business to meet this challenge, as it requires the identification of fresh talent and skills for the boardroom.

In reality, it’s more about evolution than transformation, as companies all over the world start to recognise the growing importance of having a digital leader. Globally, consumer-facing industries have led the way with such appointments, with insurance at the top with 35% followed by media, entertainment and communications with 28% and banking at 27%, according to a recent PwC study. It uses the title Chief Digital Officer to refer to any executive tasked with putting into practice the digital ambition of his or her company or business unit.

PwC reveals that while companies in Europe, the Middle East and Africa (EMEA) have more CDOs than elsewhere, there are geographical discrepancies - the gulf between Great Britain at 35% and France at 62% is considerable.

Its report cites varying business approaches to hiring a CDO – and the issues faced. “When hiring a digital leader, companies must consider not just the individual’s background and expertise, but also his or her position within the organization and the governance mechanisms from which he or she will derive the responsibility and authority needed to carry out the mission. Of course, such considerations come into play whenever a large company hires any top executive. The role of the CDO, however, is a relatively new one, and many companies are still trying to figure out what works” says PwC.

A critical point made in the report is that this is a role that is changing: “as a company’s digital ambitions take shape, the CDO may have to be take on more or different responsibilities, as well as oversee different groups or functions. At the same time, the evolution and growing sophistication of technologies enabling digital transformation can affect what skills are required of digital leaders.”

But isn’t that also true for many, if not all skills in the boardroom in 2018 and beyond? It’s certainly worth considering, given that the average age in Europe’s boardrooms is 57 and the average occupant is white and male.

We have talked a lot about the importance of culture for any business to achieve its stated goals. It is high time to bring together culture and operations in a tangible way. In his recent blog, Peter Riddell, the Commissioner for Public Appointments, writes about all the many achievements the UK has made on diversity. But he says: “There is a strong case for more coordination, and more sharing of effective practice, networks of contacts and databases where possible.”

That sounds to me also like something that should be shared across publicly listed businesses, whether or not their preferred executive search networks are involved. Because it is time to break ‘preferred supplier’ once and for all, for any business on its toes and ready to face a changing world for boardroom recruitment.