Forming an effective board of directors remains one of the most discussed aspects of corporate governance. This article will consider the basic steps to onboarding new board members.
Board of directors: how does it work?
While forming the board of directors the focus is on the question of balancing the composition of the council, first of all, from the point of view of its independence and professionalism. The process of selecting, nominating, and electing directors plays a key role in ensuring the independence and optimal set of experience, knowledge, and skills of board members.
The events of recent years and the challenges they have brought into our lives have shown that it is difficult, and sometimes almost impossible, to move forward without changes. Boards of directors did not stand aside. Their role and requirements for them are changing, priorities are being rethought. Topics such as sustainable development, digitalization and technology, and cultural transformation are increasingly on the agenda. Now for a member of the board of directors, just having competencies is not enough. It is important to be proactive, involved in the company’s processes, and have developed soft skills.
Regular work of the board of directors requires, on the one hand, attention to detail, on the other hand, the ability to comprehensively assess the prospects and risks of the company.
Basic rules to choose new board members
The high proportion of directors who are not satisfied with certain characteristics of their colleagues raises the question of the need for a more active renewal of the boards of directors and the barriers that hinder this process at present.
Reorienting the board towards strategic goals is not an easy task. To do this, a lot needs to be rethought: for example, to understand what people could effectively work on the board, to precisely define the scope of the board’s competence, to fine-tune the mechanisms of interaction with management when developing a strategic concept. A competent, progressive-minded head of the company, for his part, should be able to clearly state the strategy and not be afraid to invite specialists to the council who know certain aspects of the industry and business better than he does. Boards of directors should be bolder in recruiting their ranks. When choosing new members, the council needs to think less about political correctness and more about strategic expediency. So, what are the steps to onboard new board members?
The method used to select board members is cumulative accounting. The essence of the method is as follows:
- The number possessed by each shareholder is multiplied by the number of vacancies on the board. Shareholders have the right to cast all votes for one candidate or to distribute them in any shares. Voting takes place at once for the entire composition, and not for each vacant place.
- The elected are those who have gained the largest number of shareholders.
- Each of the shareholders is given a ballot, in which the names of all candidates are spelled out – he puts in front of the names the number of percent of the available ones.
This method has a whole list of advantages:
- Cumulative accounting makes it possible to take into account the votes of minority shareholders.
- In case of early termination of the work of the board, all members are removed – this minimizes the risk of conflicts between directors.
- A situation is impossible when a transfer is required – there is no limit on the minimum amount that a candidate must collect to get into the composition.