Important for a board member to dare to say no

The nomination committee helps ensure that the Board of Directors is comprised of the right areas of expertise. Breadth in subject areas is important, but strategic insight and member integrity are even more vital, according to a panel of Swedish experts.

“What is competence to the nomination committee?” This was the theme of a seminar at StyrelseAkademien or ‘Board Academy’ in Stockholm on 16 May, moderated by Ossian Ekdahl, Chief Active Ownership Officer at AP1. The panel members were Helena Stjernholm, Industrivärden, and Anders Oskarsson, AMF, as well as Magnus Skåninger, a consultant on ownership issues. All the participants have extensive experience of board work and nomination committees.

The point of departure for the discussion was fresh statistics of board directors from Modular Finance. It showed for instance that each director is on 1.3 boards, and that the average age of a board member is 57 years.

In tackling the question of average age, the panel expressed concern that young members lack the maturity required, for example, to dare to say no to a strong CEO, or to handle certain situations that require experience.

“I don’t think there will be any immediate and universal rejuvenation of boards in listed companies, even though there are of course likely to be some changes to the age structure moving forward. We talk about ‘being’ on a board, but there’s actually a lot of hard work and great responsibility involved,” said Helena Stjernholm.

“The way I see it, there are young men and women who are hungry to work on boards of directors, but for natural reasons they lack experience in several areas. My advice to them would be to start out as a board member in a small company, one that’s not publicly listed”

The importance of being able to say no, and also to indicate that you don’t understand, was highlighted several times during the seminar. A competent board should not be too cosy and comfortable with each other – resistance is vital.

“The hardest thing for a nomination committee is to find people who can work together in a constructive way, and lead the company in good times and bad. Their personal characteristics are more important than the various areas expertise they can show on paper,” Stjernholm explained.

Business model pivotal

One very topical specialist area is digitalisation. How should a nomination committee go about finding the right expertise there?

“There is sometimes a requirement that a board member needs to have actual digital competence themselves, for instance in programming. That’s not necessary. It’s more important that the board member can ask the right questions. It’s more important to understand the business model than to be a specialist at digitalisation,” said Ossian Ekdahl.

Several opinions stressed that board directors need to understand the strategic challenges faced by a company. So the key for the nomination committee is to identify the challenges and find the right people to deal with them.

Fees need to be higher

One challenge for nomination committees is the financial aspect, i.e. paying board members. There was a general consensus that board fees need to be raised. Hard-working board members are a cheap form of expertise compared to corporate management.

“Moreover, board members are not allowed to invoice their assignment through a business, which is problematic from a recruitment point of view,” Ossian Ekdahl explained.

Helena Stjernholm noted that the difference in board fees is large compared to that in many other countries, such as the US.

“And the Swedish krona is weak at the moment, which doesn’t exactly make it easier to attract foreign members.”