Sarbanes-Oxley Act is a "Two-Edged Sword" for Corporate Boards, Presenting Both Opportunity and Challenge

At a recent seminar I attended on the new Sarbanes-Oxley Act (SOX), it quickly became evident that the law's full impact is a work in progress.

Although much has been written about its accounting and legal impacts, less has been seen about its effect on human resources. In particular, when it comes to the selection of corporate directors, the law is a two-edged sword: its requirements for greater accountability are spurring demand for experienced, highly competent individuals willing to work hard as independent, non-executive directors—while simultaneously driving those same people away because of rising concerns over personal liability and the required time commitment.

Board Size and Composition

Now that directors are more and more pressured for time, and pressed to understand greater loads of complex information, the driving question for strengthening boards needs to be, "Given the challenges we face and the range of expertise of our current directors, what additional skills and experience would help us to do a better job?" In many ways, boards of directors are like sports teams, with members being expert at their positions and needing to blend together in a complementary way to maximize overall performance.

Objective Evaluation

Before seeking new directors who can measure up and who will want to serve, the nominating committee (or whatever group or sub-committee of the board is responsible) needs to objectively assess current board strengths and weaknesses relative to what is needed immediately and over the next three-to-five years, and then move to identify the person or persons who can provide the missing strengths.

While written job descriptions are used in the search for every conceivable, internal function—VP of Marketing or Director of Manufacturing, for instance—they have been virtually non-existent and deemed almost irrelevant for board director searches. With the "old boy" network traditionally available as a ready source of willing directors attracted by the status and privileges of directorship, written descriptions were not necessary. No longer.

Written Position Descriptions and Beyond

To assure good governance and to maximize the value that the board can and should be adding to a company, particularly in today's SOX environment, companies need to attract directors in a very deliberate, organized fashion. Here is where detailed, written position descriptions can help.

At Kincannon & Reed, for example, our searches are guided by an extensive "Position Information Form" covering thirteen major categories, each with several specific questions. As much as humanly possible, this codified approach assures that the requirements of the job are clearly spelled out and that the specifications candidates must meet have been determined objectively.

However, it is especially important that position descriptions for directors go beyond the typical focus on skills, knowledge and experience to capture the personal traits that will blend with and augment the characteristics of the other directors to best meet the board's objectives. For example, if you are recruiting to meet a specific SOX requirement, in addition to ticking off the boxes on the legal checklist, does your board need a methodical, deliberate personality or a passionate dynamo? Or would it be better to have a consensus-oriented team builder or someone to challenge the status quo?

We feel confident that using such a focused approach to answer these critical questions will help boards of directors to identify and attract the people they need to help steer their companies through future uncertainties while complying with the requirements of the demanding new environment created by Sarbanes-Oxley.

Kincannon & Reed
February 2004