Whether you are a partner in an engineering consulting practice, a director in an engineering company or part of an executive in either, ensuring that good corporate governance practices are in place is of paramount importance to a successful organisation. Engineers bring a particular and valued discipline to any organisation. As they rise through the ranks, it is important that they broaden their skill set so that they can contribute when they rise to leadership level. These additional skills may include, governance, business strategy, management and organisation skills, financial, marketing etc. Indeed, many engineers compliment their technical skills with broader management skills by doing MBAs or similar courses. These broader management skills will assist them as they progress through an organisation to join the partnership or the board of directors. However, many organisations underestimate the value of investing in these non-technical skills that will ultimately assist in the sustainability of their organisation. Some technically oriented organisations assume that the technical skills they earn their living from will be adequate to help them lead and manage organisations. Maybe yes, maybe no. A similar parallel will be the star footballer who assumes that having played the game at the highest level, they can then manage a football team. Many professional organisations often promote technically gifted individuals to senior-management positions or board level without thinking about the broader skills required. One often sees in organisations that sell a key technical competence – whether they be engineers, actuaries or accountants – that the oversight group or the board is populated by a majority of technically gifted individuals to the detriment to the other key skills required. If this trend is continued, then there is a real danger that the board could end up being composed of technical gifted board and perhaps insular individuals members to the detriment of the broader skill set required to think at a strategic level. The skills and experience required at board or at partnership board level will be those required to support the achievement of the strategic plan. Key skills typically required at board level include, governance, financial, legal, core technical and operational skills, specific industry skills etc. The responsibly for ensuring that the organisation has the right skills around the boardroom table is the board itself or a nominations committee.

The Board composition challenge

It is imperative that the nominations committee does its job well in identifying the skills and experience the organisation’s needs and then recruiting them. If the nominations committee does not do its job properly in ensuring the board has the right composition, then the performance of the organisation will diminish over time. The typical role of the nominations committee is to:
  • Regularly review the structure, size and composition (including the skills, knowledge, experience and diversity) of the Board and make recommendations to the Board with regard to any changes;
  • Give full consideration to succession planning for directors/ partners and other senior executives in the course of its work, taking into account the challenges and opportunities facing the company, and the skills and expertise needed on the Board in the future;
  • Keep under review the leadership needs of the organisation, both executive and non-executive, with a view to ensuring the continued ability of the organisation to compete effectively in the marketplace;
  • Keep up to date and fully informed about strategic issues and commercial changes affecting the company and the market in which it operates;
  • Be responsible for identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise;
  • Before any appointment is made by the Board, evaluate the balance of skills, knowledge, experience and diversity on the Board, and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment. In identifying suitable candidates, the committee shall:
    • use open advertising or the services of external advisers to facilitate the search;
    • consider candidates from a wide range of backgrounds;
    • consider candidates on merit and against objective criteria and with due regard for the benefits of diversity on the Board, including gender, taking care that appointees have enough time available to devote to the
  • For the appointment of a chairman, the committee should prepare a job specification, including the time commitment expected. A proposed chairman’s other significant commitments should be disclosed to the Board before appointment and any changes to the chairman’s commitments should be reported to the Board as they arise;
  • Prior to the appointment of a director, the proposed appointee should be required to disclose any other business interests that may result in a conflict of interest and be required to report any future business interests that could result in a conflict of interest;
  • Ensure that on appointment to the Board, non-executive directors receive a formal letter of appointment setting out clearly what is expected of them in terms of time commitment, committee service and involvement outside Board meetings;
  • Review the results of the Board performance evaluation process that relate to the composition of the Board;
  • Review annually the time required from non-executive directors. Performance evaluation should be used to assess whether the non-executive directors are spending enough time to fulfil their duties;
  • Work and liaise as necessary with all other Board committees.
The committee shall also make recommendations to the Board concerning
  • Formulating plans for succession for both executive and non-executive directors and in particular for the key roles of chairman and chief executive;
  • Suitable candidates for the role of senior independent director where appropriate;
  • Membership of the audit and remuneration committees, and any other Board committees as appropriate, in consultation with the chairman of those committees;
  • The re-appointment of any non-executive director at the conclusion of their specified term of office having given due regard to their performance and ability to continue to contribute to the Board in the light of knowledge, skills and experience required;
  • The re-election by shareholders of directors having due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required and the need for progressive refreshing of the Board (particularly in relation to directors being re-elected for a term beyond six years);
  • Any matters relating to the continuation in office of any director at any time including the suspension or termination of service of an executive director as an employee of the company subject to the provisions of the law and their service contract;
  • The appointment of any director to executive or other office

Before becoming a director

So, assuming the nominations committee has done its work diligently and you are invited to join your own board or perhaps that of another organisation, you should think hard before accepting. Deciding to become a non-executive director director should not be done on a whim. It’s a serious statutory role with specific legal and regulatory responsibilities. While there may be a certain attraction about serving on a board and it’s not hard to understand why. This could include the perceived status, sitting around the board room table with ambitious like-minded peers, career progression, new professional relationships, development opportunities it offers, access to leaders etc. However, before you get carried away and say yes, take a step back and consider the following. The skills and experience required of a non-executive director or an executive director are very different from being an executive. Don’t underestimate the gulf between the two.

Conduct due diligence

Some of the key questions that you should ask before considering accepting a directorship include:
  1. What do I need to know about the company and the industry? For example:
  • Strategic plan
  • Company’s market and its competitive positioning
  • Industry trends
  • Regulatory environment
  • Accounting and reporting methods used in the industry
  • Key risks
  1. How has the company performed over the last three years, relative to its peers and what are its plans for the future?
  2. Can I speak to former/existing board members and the management team to ensure that I understand the ethics, values and culture of the organisation and that I am comfortable with them?
  3. What is the companies record in relation to corporate governance?
  4. What are the current competencies, capabilities on the board and how can I complement and enhance them?
  5. Why specifically am I being asked to join the Boards and how can I add value?
  6. What time commitment is required for the position and do I have the time to devote it?
  7. What risks am I exposing myself to personally?
  8. How are the board and senior management perceived by the business community?
  9. What further information do I need to satisfy myself that the organisation is being properly managed, e.g. management accounts, internal audit reports, external audit post-audit memos, staff turnover, current legal cases etc.

Conclusion

Good governance will help to enable the sustainability of organisations. This applies as much to engineering consulting practices or engineering companies. An overreliance on technical engineering skills at leadership or board level could be detrimental to sustainability. Ensuring that the board of an organisation has the right blend of skills and expertise is vital to this sustainability. The role of nominations committee is fundamental in this regard. Author: David W Duffy FCA is the founder of Governance-Online.Com and author of ‘A Practical Guide for Company Directors’, published by Chartered Accountants Ireland. For your chance to win a copy of A Practical Guide for Company Directors, email your answer to the following question to jharrington@engineersireland.ie by Tuesday, 6 February 2018: List the key skills that are typically required at board level, according to David W Duffy.