New research by Deloitte highlights the level of change that FTSE 350 boards
have undergone in the past year in readiness for the new Combined Code, which
takes effect this autumn.
The much-publicised requirements of the code are clear: the recruitment
process for board directors must now be ‘formal, rigorous and transparent’, and
the performance of boards and directors must be formally evaluated. There is an
emphasis on finding more and better non-executive directors, and at least half
of the board should consist of independent non-executive directors. Over the
past year, 80 per cent of boards have altered their composition to meet the new
requirements.
Despite reservations about the changes from some quarters, the application
of rigorous HR procedures should put HR firmly on the board’s agenda, and this
time, it’s much more up close and personal.
The interesting aspect of the debate is that while formal, rigorous and
transparent procedures have been in place for employees below board level,
directors (including non-executives) are now experiencing similar requirements
at first hand.
As boards adapt, the role of the HR director is key; recruitment, talent
management, diversity and performance appraisals all come under the HR
umbrella.
Our recent boardroom research shows that companies are beginning to tap into
a more diverse candidate pool to find high-calibre non-executive directors.
While the most popular area from which companies recruit continues to be other
major listed companies, new sources are emerging, not least from non-UK
companies. Other research suggests that the role of the nomination committee is
expanding and includes regularly evaluating the balance of skills, knowledge
and experience on the board, using the information to identify gaps. The HR
director should be involved in this process and recommend how gaps should be
filled.
On joining a new board, directors should undergo induction and regularly
update their skills and knowledge. It is becoming clear that many more
companies now offer formal training on appointment. Last year, only 45 per cent
of companies provided induction training, compared with 72 per cent of
companies currently doing so. Research also shows that ongoing training is in
place for 68 per cent of companies.
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Directors not only have to be aware of the ins and outs of the business, but
also of shareholders and the tricks of effective board performance. In the
past, non-executive directors may have held the view that their position is one
for the end of their career. Not so today. HR can help to establish a culture
of learning and performance at the top end of the business by setting targets
and continuous evaluation.
By John Connolly, Chief executive and senior partner, Deloitte
