Why Merit Based Board Appointments Are More Critical Than Ever Before

Appointing the right person to the board with the right skills, experience and capability has never been more important. The fallout from the Royal Commission has highlighted boards asleep at the wheel and in some cases showcased high profile failings of individual board members who have not had the required skills and experience to deal with challenges the business has faced, losing confidence of other board members and the investor and business community. The stakes have never been as high in terms of reputation risk for under-performing board directors, the heat is on, more revelations are coming and I predict that there will be more board director resignations from the Banking and Finance sector before the end of the year.

When the Chair of AMP Catherine Brenner was forced to step down followed closely by three other female board directors who failed to attract support from the major investors, inevitably the focus shifted to gender diversity and whether female candidates had been appointed ahead of more experienced male directors. While this may have brought out the worst for both sides of the argument, shining a spotlight on this issue is imperative if we are going to improve boardroom composition and assemble a world-class board capable of dealing with today’s business challenges.

There is no doubt that many ASX boards have felt pressured and even compelled to appoint female board director candidates to achieve gender diversity targets set both formally and informally by the company, regulatory bodies and director organisations such as the Australian Institute of Company Directors which has been strongly lobbying for 30% gender diversity by 2020. An ASX board that does not achieve this target or refuses to appoint females to the boardroom have been publicly named and shamed in an attempt to force the board to alter their position. I don’t agree with this approach and there continues to be a small number of ASX 100 boards that have refused to appoint board directors based on gender and continue to focus on merit based board appointments.

Merit based board appointments have been given a bad wrap. Some high profile feminists have even gone so far as to label merit as a myth. Having worked in executive search for nearly two decades I find that a little hard to swallow, as when assessing candidates merit is your most important benchmark. Former Prime Minister Hon Julia Gillard has commented a number of times in her speeches on this topic that she believes that merit is equally distributed amongst the sexes and therefore there is no logical reason why a woman cannot be appointed to the board with equal merit. That may well be true, but we cannot and should not discount merit when appointing board directors. They simply must have the requisite skills, experience and capability to do the job and be the best possible option available in the market at the time of appointment.

Now without going into a detailed review of the board directors who stood down from the AMP board, let me make these observations. It has been reported in the media a global executive search firm had approached highly regarded former AMP CEO Andrew Mohl to serve as the Chairman of the company. He was not only extremely well qualified, experienced and skilled to take on the position, but despite turning down numerous approaches and other board directorships, Mohl had flagged his willingness and strong interest in taking on the position. For reasons that may never be clear this opportunity was not pursued. A true sliding doors moment for a business that desperately needed a highly experienced Chairman and board directors around the table that had intimate knowledge of financial planning and advisory services.

Inevitably when things go wrong in the boardroom and you start to peel back the layers and study the experience of each board director, you will start to find skills gaps and deep operational experience missing around the boardroom table. Often the experience around the boardroom may be perfectly adequate in a smaller less complex organisation, but in a large complex business with enterprise-grade problems, your board is going to unravel during a pressure test such as a Royal Commission.

In conclusion, its time to bring merit based board appointments back into the frame. Appoint the best experienced, skilled and capable board member to your board – now is the time more than ever to have the A-team in the room.

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