Hiding in plain sight: how to find and develop the next generation of directors.

• Author: Fulton, Thames
• Position: HEIDRICK & STRUGGLES GOVERNANCE LETTER

It's TOO SOON TO SAY that the CEO director is a vanishing breed but ... a revolution in slow motion is certainly under way when we look around the boardroom.

At companies large and small, many CEO-directors are nearing retirement or have reached a point where they are fully "boarded up" and unavailable for service on additional boards. Some are dropping off boards to stay focused on the increasingly complex demands of their own companies. A number are not allowed by their boards to serve on outside boards or are restricted to one outside board. Finally, facing the requirements of Sarbanes-Oxley, activist shareholders, and increased SEC scrutiny, some CEOs just don't find outside board service appealing anymore.

So, what's a board nominating committee to do?

Faced with this rapidly shrinking pool of CEO-director candidates, boards face a formidable challenge: connecting with the next generation of board talent and recruiting them to boards. Most CEO candidates are visible and, in many cases, known to boards. In today's environment, nominating committees have to look in alternate places for talent, assess this new generation effectively for fit and readiness, and ensure that they are 'onboarded' appropriately and with care. Any one of these steps can represent a challenge for even the best and most skilled boards.

Where to look

The next generation of board members will likely be found in some familiar and not-so-familiar places, each with unique promise and problems:

* Large U.S.-based global companies known for best practices in talent development: International Business Machines, Procter & Gamble, Hewlett-Packard, and numerous other companies have rightly enjoyed stellar reputations for nurturing top talent and fully developing high-potential executives. Companies that invest in talent and leadership development are, of course, where boards would expect to find experienced and talented next-generation leaders whose careers have been well managed.

However, because many boards are likely to look at these kinds of high-profile companies first, the competition for those who are genuinely qualified for board service is fierce. And most of these executives are allowed to serve on only one board, if any. There are many, less well known but equally impressive businesses with up and coming general managers on the CEO or similar track who can and should be considered for boards. The message here: Don't just look in the most obvious places.

* Large non-U.S. global companies: While the challenges of international travel to board meetings remain complex, looking at large, sophisticated non-U.S. global companies may be an option. Most likely candidates can be found in regions where executives are familiar with Sarbanes-Oxley and have sophisticated board environments (like the U.K.). Also, many global executives have spent time in the U.S. and are comfortable with the business environment and have reason to travel here. These can be interesting board candidates as well.

* Well-run private companies: Traditionally, many boards have been unwilling to look to private companies for board candidates. Rightly or wrongly, directors regarded private companies as having different priorities from a public company and perhaps not generating the scale and scope of experiences required for service on the board of a large, publicly traded company. However, the surge in private equity (PE) investment and the recruitment of strong public company-trained leaders to the private company sector has changed the environment. In fact...