Dear Board Doc: What is an Appropriate Timeline for Recruiting a New Director?

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Q: We are looking into hiring a new independent fund director for our registered funds in 2022. Do you have a checklist or timeline or another material that could aid in the process? We are hoping to cover all due diligence bases and suggest a reasonable timeline to our governance committee.

A: Corporate governance experts have encouraged public company boards to have a multi-year succession plan that anticipates board vacancies over the long-term. Ideally, a board will be able to anticipate vacancies a year in advance and have a slate of candidates at the ready before a board seat needs to be filled. If boards face unexpected vacancies or retirements, they may need to reach out to search firms or their personal networks more quickly. However, governance experts maintain that board refreshment and succession can be easier to implement if a board takes a more strategic and forward-thinking approach.

Some practical means to achieve a strategic board refreshment policy involves an annually reviewed board skills matrix; policies on retirement and term limits, and prioritization of succession issues on the board meeting agenda. Whether developed and maintained by the nominating/governance committee or the full board, a board skills/composition matrix can help the board evaluate its current strengths and potential skills gaps before a critical need arises. The input from current directors during the annual self-assessment process can further inform the skills matrix. 

Retirement policies can also help boards anticipate and plan for director vacancies long in advance of their occurrence. While boards may wish to occasionally waive these policies, boards should consider the consequences of these exceptions, which may include future unplanned vacancies and skills gaps. A strategic refreshment and succession plan will illuminate board needs clearly and early, whether it is a need for diversity or specific expertise. An informal search process begun a year in advance gives the board plenty of time to interview and search for director candidates. For boards that are yet to develop a strategic approach to refreshment, networks, databases, and search firms can help develop a slate of candidates. Even if a board determines to hire a search firm, the board should be actively involved in asserting its needs throughout the search process.

Practical tips from governance experts:

• Make refreshment and succession planning a priority task via the nom/gov committee or full board.
• A board skills matrix, updated annually, will identify current and expected skill gaps.
• Clear and enforced tenure and retirement policies helps board anticipate vacancies.
• Consider developing a list of director candidate profiles for future needs.
• Based on anticipated skill gaps, retirement and tenure limits, boards can begin interviewing candidates a year ahead of vacancy.

Resources:

Board composition: The road to strategic refreshment and succession. PwC, Spencer Stuart
https://www.spencerstuart.com/-/media/2020/july/road_strategic_board_succession_2020.pdf

Board Refreshment and Succession Planning in the New Normal, Russell Reynolds Associates
https://corpgov.law.harvard.edu/2021/10/16/board-refreshment-and-succession-planning-in-the-new-normal/