It used to be said that it’s who you know, not what you know that matters. This way of hiring is not just outdated, it compromises the quality of people you bring onto your board.
There are many reasons why boards decide to use their own networks to hire new members. Some want to save time and/or money. They presume they know the right people already and know how they could add value. For a long time, it's just been how these things work. If the current board were parachuted into their roles by an informal process, it’s hard to break out of that way of thinking.
All these factors can sway a board towards making an informal hire using their own networks. But this isn’t the right way to identify and hire the people who can really drive your board’s performance. And there’s data to prove it.
Open processes lead to better hires
Cornell University’s JR Keller is an expert in talent acquisition and management. He studied 11,000 internal hires at a Fortune 100 firm and found clear evidence that open hiring processes are more effective. Keller looked at roles that were filled through a company-wide advert inviting anyone to apply, and compared them to hires selected by managers in a closed process.The "open hire" candidates outperformed the "closed hire" candidates, “on nearly every conceivable dimension of quality.” They were also 20% less likely to quit or be fired.
The implications of Keller’s study on board hiring are obvious. The more open your hiring process, the better the results. There are three main reasons for this.
1. A bigger candidate pool leads to better applicants. Competition is more intense and standards are raised – on average, the five tallest people in a city of one million people will be taller than the five tallest people in a city of 10,000 people. By choosing someone you know would do a good job, you may overlook someone you don’t know who’d do an exceptional job.
2. It focuses decision-makers’ minds on the relevant information. As Keller explains, “The mechanics of posting” – i.e. opening up a role to applications – “require a manager to create a formal job description, which in turn establishes a set of criteria against which to evaluate potential candidates.”
When someone is selected without a formal process, “managers informally mold the job requirements around their preferred candidate rather than evaluating the candidate against the requirements of the job.” The more formal, open process forces managers “to rely on objective information."
3. Objective criteria help boards avoid bias. By starting off with an idea of who they want, boards begin by ruling out people who don’t fit that picture. This restricted search process can lead to a very homogenous board, where groupthink rules. Research shows decision-making groups with diverse perspectives perform better.
Open processes boost diversity
Any organisation looking to improve the diversity of its board needs to embrace open hiring processes. In the 2020 update to his review into ethnic diversity on boards, Sir John Parker expressed his frustration at the slow rate of change he saw across the UK’s biggest companies. “To many, our continuing lack of ethnic diversity looks less like a failure on the part of minority communities to produce competent candidates, and far more like a choice on the part of business to settle for the familiar and traditional recruitment processes,” he wrote in the foreword.
Sir John was not alone – almost every review into board diversity has stressed the importance of opening up the hiring process. The 2018 UK Corporate Governance Code said that, “Appointments to the Board should be subject to a formal, rigorous and transparent procedure.”
The Equality and Human Rights Commission Research report into Gender Diversity on Boards (2012) recommended that “Board openings need to be publicly advertised in order to increase the transparency of the appointment process.”
The Parker Review included a Directors’ Resource Toolkit with a series of “Key Questions” that organisations should ask themselves to improve diversity and inclusivity. The first on the list was, “Are Board roles advertised in a way that are open, transparent and visible to all?”
Nobody’s network has the range of candidates that an open process can attract.
Why it's good to be challenged
The best board hiring processes involve being challenged – to dig into what you really need rather than what you think you need. At Nurole we often have organisations hiring more people than they set out to, because they are introduced to different skill sets and expertise through the process.
Research by LinkedIn suggests that people actively looking for new opportunities are driven by different things compared to people who are approached about a role. The passive candidates tend to be motivated by money, while the active group wants to do better work and build their career.
There is also an ethical dimension at play if you believe in the value of transparency. A good board is a beacon and should set an example. If everyone has earned their seat at the top table through an open and meritocratic hiring process, it helps establish this culture throughout the organisation.
There is an important caveat to add. Running an open board hiring process and committing to that process are two different things. It's a waste of everyone's time if you post a role and then go through the motions, safe in the knowledge that you already know who you want. Think beyond your network, and you’ll see much better results.
Nurole is changing the way organisations hire board-level talent. Our tech-driven process is the most efficient way to find high quality, diverse candidates. We have placed 1,000 people across a whole range of sectors, roles and territories, and we have transformed the boards of multinationals, start-ups, charities, government bodies, and everything in between. Contact us to discuss your next board hire.