Speed Bumps on the Road to Smarter Boards

Boards need to look more laterally for talent. But the old mates’ network and board-recruitment practices are obstacles to mixing it up, reports Fiona Smith.

If boards do not invest enough time to ensure they get the right mix of people, skills and experience, they could be left trying to recruit a “unicorn” — the one person who can embody all the different qualities they are seeking.

Board composition is under intense and growing scrutiny from investors, regulators and the community. Under pressure to recruit more women and people of diverse cultural backgrounds, boards must also demonstrate they have the range of skills appropriate for the times.

Creating a diverse, effective board takes time and succession planning should look ahead three to four years says Antony Beaumont MAICD, managing director, CEO and board services practice at executive-search firm Russell Reynolds Associates.

Beaumont suggests that, rather than waiting for vacancies to open up and then trying to find the right people to fill them, boards should be “opportunistic” by temporarily expanding in size to accommodate potential directors with the skills they need as they find them.

Entering the matrix

Boards are increasingly using a matrix to plot out the skills and experiences of directors to understand the gaps and help plan for their future needs. As a result, board recruitment has improved “enormously” over the past four years, says Sally Freeman GAICD, national partner in charge of risk consulting at KPMG. Each is tailored to its board and can include, where appropriate, individual directors’ experience, industry knowledge, leadership, governance, strategic thinking, desired behavioural competencies, geographic experience, subject matter expertise and gender.

Freeman says the use of professional recruiters by bigger companies helps fill out the skills matrix, as they fish from a larger and more diverse pool of talent. However, with some boards, old habits die hard. “There is a still the refer-a-friend process, which means that like attracts like. People tend to know individuals working in very similar areas,” she says.

Dragging the chain

Sometimes, diversity efforts fail when the search firm is dragging its feet. Sally Evans FAICD, a non-executive director of Opal Specialist Aged Care, says a board she was on specifically asked for female candidates to add to an all-male executive team. “The shortlist came back and it was all men — despite the chairman being a huge advocate [for diversity] and the whole board behind it. We were told there were no suitable women in the Australian market for that position.”

When Evans made discreet enquiries among the women she thought would have been a good fit, she discovered, yes, they had been contacted by the recruiter, “but [the recruiter] was just going through the process and not really interested in solving our problem.”

If you know that a board has a vacancy, you have to find a way to be introduced to the chair, or to the chair of the nominations committee, and you have to go direct - even if they are recruiting through a search firm.
- Marina Go MAICD, chair Wests Tigers

Marina Go MAICD, chair of Wests Tigers and Office Brands, and a non-executive director of Energy Australia, 7-Eleven Stores Pty Ltd and Autosports Group, says she may have not gone very far in her board career if she had relied on search firms to put her name forward. She says her appointments to the ASX-listed Autosports board and also EnergyAustralia came via a board recommendation, not a recruiter.

“Boards probably feel they want a certain sort of candidate and maybe they feel like they are going to achieve that by going direct,” she says. “If that is the case, it is a worrying sign for board search firms.”

Search firms are risk-averse and reluctant to put candidates forward for ASX-listed boards unless they are already on an ASX-listed board, she says. Since her appointment to the EnergyAustralia board in April, she has been “inundated” with calls from recruiters about ASX-listed boards. “They needed [the EnergyAustralia appointment] to happen, which again tells me they’re not taking the risk themselves. Six months ago, people were not banging on the door.”

Go says some recruitment firms are doing a good job but, in her experience, she feels it is harder to get on a big board through a board search company than it is going direct.

“I may not even get on the shortlist if I go through a search firm. If you know a board has a vacancy, you have to find a way to be introduced to the chair or to the chair of the nominations committee and you have to go direct — even if they are recruiting through a search firm.”

Overcoming an Anglo-centric legacy

Getting directors with Asia experience on boards is a priority if boards are to better reflect the marketplace. Fewer than four per cent of ASX 100 and six per cent of ASX 200 board members are of Asian descent.

Asia capability on the ASX 200 is also low (19 per cent of boards, 14 per cent of senior executive teams and 10 per cent overall leadership). Additionally, of the 55 ASX 200 companies that report revenue from Asia, only 24 per cent have Asia-capable leadership. (Match Fit: Shaping Asia-capable leaders report by PwC, Institute of Managers and Leaders, Asialink Business, August 2017).

Overlooked opportunities for deepening and broadening the talent pool include the networks of organisations such as the Diversity Council of Australia, Asialink, the the China Australia Millennial Project, the Advance network of global Australians and the Asian Leadership Project.

“A high performing board breeds culture of diversity to disrupt ‘group think’ as conformity of views and perspectives bring stagnation of ideas,” says Wai Tang, GAICD, a non executive director of JB Hi Fi, Vicinity Centres.

“In Australian boardrooms we progressively promote both cultural and gender diversity and it is no different in the boardrooms in the Asia region. Take Alibaba Group as an example, they too embrace ethnicity diversity - just the reverse.”

Ming Long GAICD, a director of AMP Capital Funds Management and the Diversity Council, says the absence of cultural diversity on Australian boards is not through a lack of available talent. When she put out a call for diverse board candidates on LinkedIn recently she was deluged with potential applicants.

“Directors need to realise bias is at work and there’s an untapped or under-utilised talent pool,” she says. “Look for difference. If you already have similar people, you’ve got that perspective covered. Some directors will think different thinking is riskier — in fact, it’s the opposite. We have to fight against our natural bias. Just because someone thinks differently doesn’t mean they’re not thinking!”