Bridging the boardroom generation gap.

Today's boardrooms are at a crossroads. Boards of directors are finding themselves increasingly open to scrutiny and criticism. At the same time, the days of the old guard are waning. When the time eventually comes for seasoned incumbents to step away from the boardroom table, a gap is often created if an effective succession plan has not been put into place. It's time to start filling the gaps.

**********

Typically, boards recruit new directors from the circle of people they already know. This approach worked well in the past but today it is essential to look further afield for the required talent. But as we evolve from yesterday's "closed ranks" approach, the question remains--who is positioned to fill the gap and where can you find them?

[ILLUSTRATION OMITTED]

[ILLUSTRATION OMITTED]

Younger talent, while valuable, operates within its own circle of acquaintances that is often unfamiliar to boards out seeking new directors. Younger talent may also be an unknown entity that has not proven itself. Those individuals who have proven talent quickly lose patience waiting for their chance to join the boardroom table and are quick to ply their talents elsewhere.

The dilemma facing corporations today is knowing how to recognize the talent that is available, and finding the means to assess, develop and retain it. This insight is critical, since opening board membership to younger talent, while effective in injecting new life into staid business practices, can represent a level of risk which some are not willing to take. At the same time, maintaining the status quo with seasoned board members who will soon retire can carry a larger risk, since it can jeopardize a corporation's long-term success.

The changing of the old guard

The challenge of structuring an effective and responsible board has become greater than ever before. Today we are witnessing a major transition phase that will see a large percentage of incumbents step out of the picture, and a new legislative environment that is keeping corporate behaviour under a microscope.

There are an unprecedented number of very experienced directors leaving boardrooms for retirement. Highland Partners' studies have indicated that between 2000 and 2005, approximately 20-25% of directors currently serving on boards will reach retirement age and will have to be replaced. To put this in perspective, 25% of directors listed in the Financial Post Directory of Directors represent about 4,000 individuals.

A second factor that is having a major impact on board structuring is the increased legislation that now regulates all aspects of corporate governance. There is an increased awareness on the part of companies that they have to provide a higher level of governance with respect to the performance and the behaviour of their board members. Several key pieces of legislation have been introduced that set out regulations for all aspects of corporate governance in the country, including disclosure of information to shareholders, the role of boards in audits and the role of audit committees, and requirements for financial literacy for directors serving on boards and on audit committees.

[ILLUSTRATION OMITTED]

All of these factors have had a tremendous influence on the way boards have changed their practices, including the selection of board members. The old ways of selecting candidates are proving woefully inadequate in light of these issues. No longer can board members rely on the "old boy's network" to fill vacancies with peers. Rather, succession planning means looking to a new generation of business executives that can drive change and lead growth strategies for the future.

With any major transitions of this magnitude, impasses are inevitable. Incumbents, while recognizing the need for a succession plan, are more comfortable with the ways that have worked for them over the years. They are often less accepting of next generation talent, and unwilling to acknowledge that things need to be managed differently now.

The new landscape

Beyond the regulatory and governance issues, business has evolved in numerous ways that directly impact succession criteria. While there may have been international corporations 30 years ago, global corporations as we know them today simply did not exist. Whereas boards were once the final arbiters on every decision, accountability has shifted inexorably to other levels, including shareholders, investors and the general public.

The new board ideal is a multi-faceted one that incorporates a broader range of skills, cultures, ages and industry specializations. A critical challenge in evolving to this ideal is learning to understand alternative channels for sourcing board talent. How does one find executives that are capable of serving well on boards that are not necessarily moving within a closed circle of peers? How does one recognize and source the particular skill sets required to address more challenging corporate issues, such as competing in global markets, cultural diversity, environmental regulatory procedures and the myriad of other social, economic and political factors that are part and parcel of today's corporate responsibilities?

When the time comes to bring in a new board member, therefore, it is no longer feasible for executives to visit their Rolodexes or ask business colleagues for recommendations.

The solution, rather, is found in learning new ways to find, identify and screen well qualified candidates operating outside of familiar circles.

This approach involves, among other things, understanding what qualities and disciplines are needed for the business. A corporation must define its needs with respect to capital, people, technology and other resources. Is the business international or domestic? Does the business strategy require expansion into new markets or the use of new technology? Will there be expansion through acquisitions?

Obviously each of these issues would require distinct skill sets. By adopting a "what do we need" or "what is the next cycle" approach, companies can better determine the type and level of expertise required and put the processes in place to find it.

Widening the circle

It is especially important when assessing new candidates to avoid considering them as straight replacements for old members. Filling a vacancy provides the ideal opportunity to make a gradual transition to creating the board that will shape the future of the company. The retiring incumbent, in fact, may not have acquired all of the requisite skills needed to move the company forward. New skill sets are required and must be assessed and validated with great care.

In most cases, boards are wise to source multiple candidates. In the interest of expediency, corporations have often restricted themselves to a limited universe of candidates or focused on specific "marquee" individuals without doing a thorough search of possible alternatives.

Where boards are unable to engage in the extensive due diligence required for a director search, one possible route is tapping into resources that specialize in this area, such as an executive search firm. This approach ensures that proper due diligence is performed, and that there is no implication of undue influence in the selection process.

There are also a range of services and directories that provide ample information for starting a search. For example there is the recently published ICD Directors' Register by the Institute of Corporate Directors, and the Women in the Lead directory, both of which provide comprehensive listings of hundreds of potential board candidates from a broad base of business sectors. Non-profit organizations can tap into BoardMatch, an online service that introduces registered charities to individuals willing to serve on boards.

Professional associations can also represent a valuable source of information and ideal networking opportunities for expanding a company's scope. CMA Canada, for example, has comprehensive information on fellow management accountants and can act as a valuable source of information for finding the right fit for your organization. The Young Presidents' Organization (YPO) is another potential source for finding qualified younger candidates. Often, it is also worthwhile considering reaching outside the country to source individuals with the market knowledge required.

When a promising candidate comes to the fore, it is also important to look beyond the surface to gain a clearer understanding of the capabilities underlying the resume. We have seen situations where decisions were made based on seemingly impressive qualifications, only to find that the individual's track record was less than adequate. Working for an international company, for example, does not necessarily constitute international experience.

On the other side of the coin, lack of public company board experience should not be a reason to automatically eliminate a potential candidate. Individuals that have sat on not-for-profit or crown corporation boards can bring considerable value to a company. Bear in mind that these boards are as rigorous in their recruiting and appointments as any corporation. Some, in fact, are as large as the biggest corporations in the country. The issues faced by these boards can be highly complex, high risk and in the case of hospital boards, potentially life threatening. The skills acquired through working on these types of boards should not be taken lightly.

There is no question that proper succession planning for today's corporate boards takes considerable time and effort. While old networks become increasingly constricted, forging new ones can involve months--and in many cases years--of groundwork. Some boards of large corporations spend up to two to three years networking with potential candidates, developing relationships and assessing individuals to ensure continuity is maintained and that there is a healthy reserve of highly qualified candidates.

The startup dilemma

Succession planning is an especially challenging issue for startups, and carries with it some unique considerations. These issues are particularly prevalent for technology and biotech firms, where required board skills can vary dramatically from the founding months to the maturity of the firm.

Early stage boards tend to be populated with investors and company founders who have extensive expertise in generating funding and product development. As the company evolves and product launch is imminent, these boards need to shift their focus and consider what skill sets are needed to compete effectively in the market.

While this task seems straightforward, many companies grossly underestimate the time and effort required to attract the higher profile, business-savvy expertise needed when the time comes to compete with heavy hitting global competitors. Sourcing the right person can take a year or more, which means start-ups need to be much more aggressive and aware of the timing issues in bringing new players on board. This planning will help minimize risk and improve the chances of success once the business becomes viable.

While specific product knowledge is a desirable attribute on corporate boards, it can be absolutely critical for companies heavily engaged in biotechnology or technology markets. Business knowledge has its place. However, having successfully scaled a business or taken it public in a similar space and market can often bring greater value to the equation.

Bringing domain experts to the table can be instrumental in opening doors to new markets. Bringing people to the table that can provide exceptional value in the way of R & D, commercialization and international market expertise will often minimize the risk and maximize the benefits for the shareholders.

The key to successful planning for startups is mastering the timing issues and providing continuity to the organization. Focus should be on a steady cycle of replacing board members to ensure that one has the right players around the table who can provide the right advice and value at the right time. Under these circumstances, boards can easily go through multiple evolutions--from founders and investors to specialists in R & D and clinical trials to a mix of financial experts, internationally seasoned business leaders and R & D specialists.

Keeping on track

As the face of the boardroom changes, Canadian corporations have to rethink their selection criteria for board appointments as a significant number of long-standing board members make their way to retirement. While many do acknowledge the problem, there is still much that needs to be done in terms of re-aligning processes and exploring alternative channels for succession planning. We are definitely seeing a need for change, and now is the time to act.

RELATED ARTICLE: LOOKING BEYOND THE BOUNDARIES FOR BOARD LEVEL TALENT

Doreen McKenzie-Sanders, Executive Director, Women in the Lead Incorporated

Four years ago, Doreen McKenzie-Sanders found herself participating in a round table discussion on women in management. She recalls that financier and entrepreneur Milton Wong challenged her on the statement that there were many qualified women available to serve on boards. His question to her was "Who are they and where are they? We're always looking and can't find them.' McKenzie-Sanders says, "We had been talking so long about the problem. It was time to come up with some solutions."

[ILLUSTRATION OMITTED]

She began creating a list of potential candidates. But once an article appeared on the roundtable she attended, the floodgates opened. "I received 104 submissions over a single weekend. I knew then we had the makings of a book."

The first edition of the Women in the Lead directory--sponsored by the Ivey Business School and HSBC Bank Canada--came out in 2002, providing a comprehensive listing of over 300 qualified women board candidates from across Canada. The second edition, Women in the Lead/Femmes de Tete launched this past summer, contains over 550 listings distilled from a total of 700 submissions. Candidates are categorized by name, business sector, language and language skills. Currently there are 25 languages represented. Selection is based on criteria established by two of Canada's leading executive search firms. The new edition includes a new section that breaks out 108 resumes from French Canada. Copies are available through www.womeninthelead.ca.

"We are operating in a time where there is such a need to improve corporate boards and provide more transparency," McKenzie-Sanders says. "Corporate governance has become a new industry. People are now searching for qualified people, including women, to serve on boards."

She comments that Women in the Lead is designed to help corporations in their search for candidates. "Not only do we assist qualified women in attaining board appointments, we're showing people that there is an untapped pool of talent that many say doesn't exist in Canada. We're saying here they are, and here are their qualifications."

Marcelo Mackinlay is the managing partner of Highland Partners in Toronto. He is a member and past chair of the Institute of Corporate Directors, as well as a member of the Strategic Leadership Forum.

France Simard is global sector leader for communications & convergence, as well as a Partner in the Life Science Practice for Highland Partners in Toronto.