Mr./Ms. finance professional: you may now be seated; New rules are driving the demand for independent directors and finance experts and changing the dynamics of selecting boards of directors. Three recruiters talk about the new realities for finance pros who aspire to board seats.

As a senior financial professional, you believe you are qualified to serve on a board, and you are willing to devote the time and energy to do so. You view board service as a good way to share the expertise you've gained over the years. But, it hasn't happened. Your phone hasn't rung, and you don't promote yourself because, frankly, like a young lady wanting a date for the prom, you simply wait for an invitation because you know that's the way it is done.

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Or, is it? With the growing need for specialized board members--what with Sarbanes-Oxley legislation, regulatory changes, increased transparency, board diversity and stepped-up activist agitation--there has been a shift in the process for gaining board seats. Now, as recruiters have gotten into the act, the proverbial "who-you-know" route is morphing into--besides which CEOs and directors you know--which recruiter relationships you have and whose databases you are in.

With the composition of boards changing, Financial Executive's Executive Editor Ellen M. Heffes asked several executive recruiters to talk about the environment and the process for working with candidates to fill the empty seats.

Julie Hembrock Daum, the New York-based practice leader of the North American Board Services Practice of executive recruiter Spencer Stuart, says that about 40 percent of the firm's approximately 300 board searches last year were for finance experts. About 20 percent of Egon Zehnder International's current open board searches are for finance experts, says George L. Davis Jr., its Boston-based U.S. co-managing partner and U.S. co-head of its board practice.

While many CFOs and others have complaints about the extra work spawned by Sarbanes-Oxley, for search firms, it's another story. At Spencer Stuart, Daum says the new regulations have "had a huge impact in our business, in volume and also in terms of the process and who we're looking for and how we go about looking for them." The firm's board recruiting practice business doubled the year that Sarbanes-Oxley was introduced, as the new regulations have increased interest in candidates for audit committees as well as compensation committees.

Carter Burgess, New York-based managing director for The Directorship Search Group, notes Sarbanes-Oxley has increased the level of activity because "the pool has tightened."

Besides activity and volume, Sarbanes-Oxley has brought about major changes in process. Daum says one major change--which was not regulated, but has happened--is that boards are taking responsibility for recruiting new board members. In the past, she says, it really did tend to be the purview of the CEO. "Now, it's the board, usually working in conjunction with the CEO."

She says there are several reasons why boards are interested in putting a process in place to help them identify directors. In this era of governance and transparency, "everybody is more careful about making sure that they don't just put the first person they know on the board, but, rather, [that] they really identify the kinds of skills they need and who are the people that have the best qualifications."

Also, boards have to now disclose in their proxy where the name came from. "People don't want to say, 'that is my golfing buddy,' [but rather] they want to be able to say that they went through a legitimate process," comments Daum.

Another consequence of Sarbanes-Oxley is that it has become a lot harder for CEOs and boards alone to recruit directors. "All of a sudden, even if they know qualified people, their own networks may not actually get them the results that they would have in the past," notes Daum. This is particularly the case when it comes to diversity, she says, because "you might be looking for kinds of people that you don't know"--many just didn't have anybody in their network. This may also hold true for the finance expert, since current boards might be looking for a CFO and they just don't necessarily come in contact with them.

Davis adds that "the scrutiny, clarity and transparency demanded has made everybody sharpen their pencils extra fine." As a recruiter, he says he wants to make sure people are well-qualified and well-referenced. "Being a board director is a serious responsibility, with serious work," he says, and no longer the country club, show up and read your mail during the meetings role.

Besides qualifying people's attributes, Davis says, recruiters have to determine: How do they behave in the boardroom? What do their references say? Are they a good board member? Do they participate? Do they add insights?

Thus, bringing in recruiters gives boards a third party to assist in the process. They can then indicate that "we took great efforts to get the very best possible selection, whether they be people who were introduced by the board or were introduced by the search firm, because it's a process that they can point to," says Burgess.

The Directorship Search Group (formed by Russell Reynolds when he retired from the firm that still bears his name), is also seeing more business. Burgess explains that while many boards do indeed rely on who they know, that doesn't necessarily imply "cronyism" but rather "a comfort level" with people they know from a reputational standpoint. Even so, he adds, a recommendation alone is not now bringing in the right kind of people.

"So, we're [recruiters] brought in to help expand the supply and also to provide the vetting process." He says almost 90 percent of the time when his firm is involved, candidates brought onto the boards "have come from us, [and] are new to the process."

Are Recruiters Looking for You?

Most boards looking to add a finance expert tend to be looking for CFOs, says Daum. In an ideal world, and for a while, she says, they were looking for people who'd come up the controller route--not necessarily the treasury route--and from public companies. Now that people realize how much time is involved with the audit committee, boards are also looking at retired CFOs, who have more control over their time and more time to give.

"We do see an interest in having more than one financial person on a board, because the audit committee is so much work and because you don't necessarily want one person chairing it forever. So you need some bench strength and some depth," Daum says. Also, some tend look for retired bankers or retired accounting firm partners, provided they have complimentary financial skills to the CFO.

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Prior board experience "is always a good thing," says Davis. However, he adds, given the need for financial experts, for CFOs who have not had board experience, board service is a wonderful way for them get the experience to qualify for succession planning at their own companies to become a CEO.

Burgess stresses "relativity," meaning someone's experience relative to the board position that he is trying to fill at a given time. A person who is treasurer of a $200 million public company and is promoted to CFO certainly has good experience, he explains. But, depending upon the size of the company where a board seat is available, it might be relatively unimportant experience. "You've got to think about what you've accomplished in your career, in the breadth and size under which all that took place in terms of company size," says Burgess.

So, yes, size matters. He says people often would love to be on a board, and their experience is good, "but we might be working on an assignment where it just doesn't match up." Indeed, Daum says, "size of company is important; that really matters first."

The Finance Expert

When it comes to the finance expert, Davis says that the audit committee clearly gets a lot of attention because it needs a finance expert, due to the charters and the roles and regulations. But, he adds, "having somebody very knowledgeable on the compensation committee has also become a highly sought-after role, because there's much more shareholder and institutional investor scrutiny." He believes the new Securities and Exchange Commission compensation rules and regulations have made it a much more difficult job in terms of time and commitment--which leads to a smaller candidate pool.

When assessing financial experts, he says, you have to differentiate between "financially literate" and "financial expert." Financially literate individuals can sit on the board, but you do need financial experts, according to certain rules. In terms of background needed to qualify for the finance expert spot, he says, there are a myriad of issues to think about, such as: Are you a CFO? A CPA? Do you come out of a public accounting firm?

Burgess says his firm has seen a dramatic increase, to approximately 30 percent of searches, for individuals with the background to satisfy the finance expert role. On the other hand, he adds, boards are always looking for people that are financially savvy--for serving on the audit committee, in the hopes of later becoming chairman of the audit committee.

The ideal candidate, Burgess says, has not only the financial expertise--by being a CFO, or in certain situations, a treasurer, or an audit partner--but has broadened his or her experience as much as possible. That means taking on other responsibilities that may be P & L in nature or that would allow them to become a broader-based executive.

Do Recruiters Want Your Resume?

The process for being placed as a board member via a recruiter operates somewhat like an executive job search, and can take 60 to 90 days or up to six months if it's a global search. Davis says his firm always wants to know who is the best talent and qualified individuals who would be interested for board service, and welcomes individuals to register on the firm's website. He describes Egon Zehnder's global database as its "intellectual property versus other search firms."

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The selection process begins by talking with the board: having a dialogue with the nominating committee and with the full board to make sure that there's a clear definition of the specifications--what attributes and industry backgrounds he or she should have.

"Then, we go back and find individuals that match that spec," says Davis. That involves "talking to people, to source great ideas of who would fit that role." Each board member slot, he says, is unique. "You can't take a cookie-cutter approach and say a financial expert is a financial expert ... and one size fits all."

Daum describes the process as one with "a little magic and a little science." She says her firm's database includes all the CFOs and retired CFOs of companies over a certain size, many of whom have been recruited for their "day job" by Spencer Stuart.

"We know what boards they're on, and we know a fair amount about them, so we start with that." In addition, she says there is a "very concerted effort to get to know the CFOs we don't know"--to find out their interest in a board, and what kind of company they'd be interested in. The database knowledge is then supplemented with personal knowledge of individuals and what kind of board would be a good fit. "It's very hard to quantify how you do that, but we spend a lot of time and energy getting to know people," says Daum.

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Burgess advises interested individuals to reach out to the firms that are actively recruiting and that do take resumes. Another approach, he suggests, is to become proactive. For companies you think align with your background and what you've accomplished, using the "six degrees of separation" concept, find out if there is some way that you know people that are linked to the board, and indicate your interest. "It's always better to be asked than to ask, clearly. But there may be some opportunities to plant some seeds," he says.

Also, if not currently on a board, a good way to gain experience and "get in the network," says Burgess, is to get involved in non-profit board activities. "It's also a vantage point for potential boards to get a perspective on how you operate as a director." Planting such seeds, he says, can help get your name out there.

Many FEI members also gain board seats by registering for the FEI Directors Registry (see box on this page).

Recruiters: the New 'Who You Know?'

Davis says it's important for interested parties "to make themselves known to recruiters, and let the process take its course." They need to understand that recruiters are going to be very judicious and will likely select final candidates with the best fit for skills and backgrounds.

The Directorship Search Group's Burgess echoes that it's important to get to know recruiters. You just never know, he comments. It may not be immediately, but if you get in the system, "you might get that call."

Boards are doing an increasingly better job of defining the profile of the person they're seeking, in terms of industry background, functional expertise and the type of setting they want people to have operated in, says Burgess. "So, we work with them upfront to get all of that laid out in a thoughtful and realistic fashion." That, he says, allows going into his database, and also doing fresh research to identify people who are currently active in corporate settings. People in between jobs or job seekers are a bit more problematic, and perhaps shouldn't be thinking about a board search until they've landed a position, he says.

Daum says she keeps a database of unsolicited resumes. She stresses having the right qualifications for specific placements and managing expectations. Say you're a CFO of a private company. You may be very smart and financially strong, but you simply don't have the kind of skills that a client is seeking, which is somebody who has dealt with Sarbanes-Oxley Section 404 and the SEC, etc.

In general, Daum says, it is better "if you have an introduction, or the written support of your CEO. Also, a director on your own company board could write and say, 'I've worked with him or her and think she'd be great.' We take notice of that."

If you're thinking that you can move towards retirement by getting a a board seat, you may want to think again. Davis says he'd "caution anybody to think that a board seat is an ease into retirement. Board membership and board work is full-time; it is very serious stuff.

"Boards get graded, and self-evaluate each other to see if people are contributing at full capacity," Davis points out. However, he believes there are lots of people who can contribute well into their later years serving on a corporate board.

Burgess says if you are interested, don't wait until you're already retired--that could be problematic. "It's nice to get that first board under your belt as you're heading off to retirement."

RELATED ARTICLE: FEI Directors Registry

With the expanded need for finance experts on boards of directors, FEI launched the online FEI Directors Registry in 2004. It can be accessed at www.fei.org/careers/registry. The Registry currently boasts more than 1,400 FEI members who are seeking board opportunities.

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Members list their availability by completing an online professional profile and uploading a biography or resume. Corporate boards and retained executive search firms are granted access to search for qualified finance experts for boards in all industries and in all geographies.

Diane Albergo, FEI director of Career Services, says that "with the increasing need for financial experts for corporate boards, registries such as ours represent a great resource and tool for those seeking board candidates."

Individual questions can be directed to Albergo at [e-mail] or by calling her at 973.765.1026.

RELATED ARTICLE: takeaways

* New regulations that require independent directors and financial experts are driving changes in who and how board seats get filled.

* The process for selecting directors--formerly under the purview of CEOs, and now CEOs and boards--now includes retained executive search firms.

* Recruiters vet proposed candidates suggested by boards and identify new candidates after determining their interests and skills for bringing insights to the board.

* Key to getting a board seat is having the right experience in terms of company size, industry, P & L responsibilities and career progression, etc.