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After robust debate recently about the lack of diversity on the boards of New Zealand companies, some have been criticised for not looking beyond their immediate circle for directors.
Operating in a small business community, boards have played it safe and not brought in enough outsiders, say some critics. They lack complementary skills and their businesses have not grown as they might.
Lessons can be learned from the way Australian businesses run director recruitment. Australia is said to be leading the world in the way it selects board members, according to Andrew Kakabadse, Cranfield University international management professor.
"Company needs are dynamic and board composition must reflect changing needs," said the Australian Institute of Company Directors in a policy submission to a parliamentary committee last year. Some boards tend to seek a new board director every three years to rebalance the board's skill set, it says.
"With changing workplace practices, younger executives are seeking board appointments earlier as an alternative career in directorship rather than remaining with a company until retirement which was once the case," it added.
Catherine Brenner, a high-profile businesswoman in Australia and former managing director of ABN AMRO Rothschild, vowed when she was 26 that she would be a director at 36.
She took the not-for-profit route and now, at 37, has a number of impressive directorships - with Coca-Cola Amatil, Centennial Coal, Trafalgar Corporate Group and others.
The institute recommends boards use search firms to expand the pool of potential recruits in Australia and also suggests that nomination committees publish their methodologies for identifying and selecting directors for board appointments on company websites for the benefit of all shareholders.
In its submission, the institute said board nomination committees should follow a formal process for succession planning and renewal of board and management, often guided by professional search firms and board performance reviews.
Stafford Bagot, Sydney-based associate principal at top headhunters Heidrick & Struggles, has instructions from one board chairman to find him a young gun who is not ready to be a director but who has the potential.
He or she will join one of the main board's subcommittees and be mentored by the chairman himself.
"This mentoring is providing them with a different insight, it gives them the opportunity of having a helicopter view of the company, by working in the sub-committee," says Bagot. It's an unusual and refreshing approach, he says.
Some companies also have an "alternative director" - a bit like a 12th man in cricket. They attend board meetings when another director can't make it. Some organisations introduce new directors that way, says Bagot.
Iain McCormick, managing director of the Executive Coaching Centre in New Zealand, and founder of online director evaluation website www.directorevaluation.com, has helped many executives make the step up to board level. He tells them to get on to a board of school trustees or other not-for-profit organisations. That experience, with technical expertise, should make them attractive to boards.
What sort of skills should a board have? A lot, says McCormick. It needs people who understand governance and fiduciary responsibilities; people who are good at board process; people with a variety of skills such as accounting, legal and finance.
"You need people who are good at risk management, especially for a bigger company," says McCormick. And the board should have entrepreneurial aims and, as such, should be able to show leadership to the company. The real issue about boards, says the executive coach, is that if they are simply composed of people all coming from the same system, they lack something.
He is working with a board that has an academic with a lot of expertise in strategy. "He comes at issues from such a different perspective that no one in the industry has ever thought of,: says McCormick.
"It's too easy for boards to say, 'directors must have industry experience'," he adds. Sometimes, people who don't know anything about the industry will ask the stupid question which opens up a whole new world for that company.
Jens Mueller, associate professor of entrepreneurship and strategy at the Waikato University School of Management - and co-founder of website www.finddirectors.com - has been a vocal critic of the closed circles some boards move in. Directors should have truly relevant qualifications to the company; boards should look beyond lawyers, accountants and engineers.
"It completely depends on the organisation - if you are looking to turn your business into an export franchising one, look for people who have done franchising in export markets," says Mueller.
"If a board is only staffed by insiders, you may as well have the board meeting in the lunch room."
More directorship opportunities look likely to be coming up in New Zealand, according to Mueller.
In a 2006 survey, he found that small to medium enterprises expressed a need for thousands of independent directors over the next five years. They will need the support of their boards to learn all the skills their positions require, as could many incumbent directors, says Mueller. Boards can send them to a number of institutions to get those skills.
Waikato University runs a directors' programme which is run a bit like a mini-MBA. Massey University also offers a course and the Institute of Directors has a number of qualifications.
Gill South is a freelance business writer based in Auckland.
