The role of the CEO in board selection: too much, or too little, involvement can be problematic. Here is a best-practices process for CEO input and participation in the search for a new board member.

AuthorThompson, John
PositionHEIDRICK & STRUGGLES GOVERNANCE LETTER

HALF A DECADE after the radical reshaping of board structure, processes, and accountability mandated by Sarbanes-Oxley (SOX) and reflected in SEC rules, governance practices remain unsettled with regard to the CEO's role in board selection. The days when CEOs of public companies largely chose new board members on the basis of business or personal ties have certainly waned. Increasingly, nominating committees, now required to disclose their process for identifying and evaluating nominees, drive the search.

In some cases, there is too little CEO involvement in the process; in others, there is too much. Neither approach is likely to produce the ideal result. Too much CEO involvement can lead to the kind of rubber-stamp boards that characterized the corporate scandals of the recent past. Far short of scandal, such boards can damage company performance by failing to challenge management on critical issues. Too little CEO involvement in the board selection process can result in new board members who cannot work with the CEO, do not understand the company's strategic direction, and lack the skills to help oversee it. Keeping the CEO entirely at arm's length until near the end of the selection process can also result in acrimonious disagreement about the suitability of a candidate and end in the embarrassing necessity to reject a candidate who thought the appointment was a foregone conclusion.

The process in context

These disparities in the degree and nature of the CEO's involvement are found in part because the context and situation often differ from company to company. The most obvious differences lie between public companies and private companies. Public companies, subject to a different set of laws and standards, are more likely to adopt the post-SOX independent approach. In private companies, especially those with a CEO who is a majority owner, the CEO is often firmly in control of the process. Moreover, because far less information is publicly available about private companies, the CEO of a private company will necessarily have to spend far more time educating board candidates about the company and its business.

The degree of CEO involvement may also hinge on other factors, including:

* CEO Tenure: If the board foresees CEO succession in the near future owing to, for example, mandatory retirement, issues of chemistry and establishing a relationship between the CEO and a new board member are far less important. The CEO can still provide a prospective board member with valuable insight about the company, but the CEO will have less at stake in the outcome of the process. On the other hand, in the case of a new CEO recruiting a new board, the...

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