Establishing an effective board of directors entails identifying qualified candidates who have substantial experience that strengthens the board’s critical thinking processes, have established strong ties to the community, understand the commitment and support Environmental, Social and Governance (ESG) initiatives including diversity and inclusion (D&I).
Board diversity matters
ESG considerations are a hot topic with stakeholders and regulators who note that organizations with diverse boards report stronger earnings, experience more effective corporate governance and benefit from better reputations and less litigation risk.In October 2021, acting Comptroller of the Currency Michael J. Hsu said the agency is exploring ways to improve board diversity, including “encouraging organizations to make it a practice to nominate or consider a diverse range of candidates or requiring institutions to either diversify their boards or explain why they have not.”
Bloomberg News recently reported that the percentage of women on boards at the largest U.S. organizations may have topped out at 33 percent, considered the threshold for a given demographic to carry influence in the boardroom. The report also noted that only 14 of the S&P 500 Bank Index companies have female membership at 30 percent or more.
D&I considerations go beyond gender. While appointment of Black directors has risen, Hispanic directors remain under- represented on the largest U.S. organization boards. One of the biggest areas of consideration for financial institutions is age and not just at community-based institutions — five S&P 500 Bank Index companies have board members with decades of membership and whose average age is 67 and above.
While ESG and D&I are important, other considerations are important, too. Ultimately the focus needs to be on the right people with a passion and mindset that fits with the institution’s mission, values and goals. Below are some strategies to recruit effective and engaged board members:
Document roles and responsibilities. Similar to an employee job description, define your needs and the board’s role to help a candidate determine if they align with your organization’s vision.
Tap into your networks. Board members’ relationships with candidates can uncover opportunities to recruit leaders who contribute to board expertise related to auditing, reporting, governance, regulatory compliance and more. Leveraging these connections could also help raise the bank’s local profile and awareness of products and services to bring in deposits, provide loans to underserved areas and increase walletshare.
Put a plan in place. Be prepared to talk about board responsibilities, time commitments and any compensation during candidate interviews. Explain the relationship between the board and organization management, including the importance of independent decision-making.
Go for it. Learn as much as you can about a candidate’s background, experience and interest in exploring new opportunities, giving back to their communities or tackling the “next big thing” in their careers. Then reach out to them. Just because you may think someone is too busy doesn’t mean they may not be interested in joining your board. If they decline the invitation, they could refer to you another great prospect.
Identifying, recruiting and retaining the right board directors is essential to keeping members energized, enthusiastic and engaged.