There are a number of key questions board selection committees should be asking. The most important is: What risks does the company face? An understanding of a company’s business environment and the potential risks it could face is essential to ensuring the board’s ability to detect trouble sooner rather than later.
Following an assessment of a company’s risks, the next question is an obvious one: Are there board members who understand the company’s risks? The selection of new directors should be based in large measure on the extent to which the current board collectively understands the company’s risks and opportunities. New director appointments should fill the gaps.
The final step is the first question that board selection committees should put to candidates: Does the candidate under review understand the industry risks that the current board members lack?
When directors who fill these risk gaps have been identified, only then is it possible to go back and add extra criteria, such as the ability to assist the CEO, exercise judgment, obtain regional and ethnic representation, and even a cultural fit. By doing so, directors may also contribute to identifying and growing market opportunities and sales.