A shortage of ''qualified'' directors? Maybe companies aren't looking hard enough.

Posted: Friday, July 23, 2004

NEW YORK (AP) ''There's a shortage of qualified candidates.'' It's been an all-purpose argument for opponents to so many changes adopted or proposed in the backlash to corporate scandal:

That's why the push for more independent directors on corporate boards is misguided.

That's why the new standards for what qualifies as independent are too stringent.

That's why top executives need to be paid so much.

That's why it's OK to let the same person be CEO and chairman.

That's why the new rule requiring an independent chairman on all mutual fund boards is off base.

By some accounts, the ''existing'' pool of qualified candidates may even dwindle as executives decide that the legal risks and time commitment of board service are too onerous or simply not worth the trouble.

So maybe it's time for companies and executive search firms to expand the pool of qualified candidates to include all qualified candidates, rather than the usual suspects.

Among 1,300 of the nation's biggest public companies, women hold 10 percent of the board seats and minorities account for 9.5 percent of the seats, according to a new tally by the Investor Responsibility Research Center based on the latest filings with the Securities and Exchange Commission.

Similarly, only about 8 percent of the top offices posts including CEO, president, chief financial officer, chief operating officer, chair, vice chair are held by women at the companies in the Fortune 500, according to Catalyst, an advocacy group for female executives. Overall, only eight of the 500 CEOs are female.

Viewed against such numbers, any complaints about a shortage of qualified executives shine a light back on the stubbornly insular nature of the corporate establishment. And if the members of this club look beyond their traditional ranks, they'll find legions of new talent ready to help companies work their way through the dilemma posed by new regulatory burdens.

There's little doubt that reform has stretched the ''existing'' corps of corporate officers thin. Two years of sweeping changes have altered the job description for senior executives and corporate directors.

Where board members used to devote about 150 hours a year to the job of being a director, the average has risen to 250 hours per year since the Sarbanes-Oxley Act was passed by Congress in 2002, according to SEC Commissioner Harvey J. Goldschmid.

And even for those not intimidated by the added workload, the increased legal liabilities being thrust on directors may be enough to make some think twice about serving.

''For every person you hear about who's leaving a board, there's probably three or four more people quietly resigning and 10 people considering resigning,'' said Trey Reynolds, president of The Directorship Search Group Inc. ''As an independent director, there's a lot more time spent on compliance issues. ... If a company runs into trouble, the board could be really strapped, and it could really eat into amount of time the directors can spend with their own companies.''

But despite the apparent strain on the system, statistics suggest strongly there is a large untapped reserve consisting of female and minority executives holding the sort of jobs that should qualify them for higher office.

In 2003, women accounted for only 2,140 of the 13,673 ''corporate officers'' employed by Fortune 500 companies, according to a study by Catalyst.

While that number sounds disproportionate, it still represents a sizable pool of talent that might be called upon by other companies to join their boards of directors. And yet only 47 of those women, or 2.2 percent, held seats on the board at other companies.

One explanation for the disparity may be found deeper in the numbers. Among the 13,673 corporate officers, nearly half held positions with the type of bottom line, non-administrative duties which involve the skills and experiences seen as necessary for more senior posts and board seats. But among those executives, only about 10 percent, or 635, were women, Catalyst reported.

''If the criteria for board service is to be a sitting CEO of a major Fortune 500 corporation, then there's not enough candidates. But if you want people with experience at running a business, then there are in fact lots of qualified women,'' said Deborah Soon, vice president for executive leadership at Catalyst.

Not surprisingly, one of the obstacles to uncovering that resource is the insider mentality of the corporate world.

''Personal referrals carry a lot of weight. Boards have predominantly been male, so there haven't been a lot of women in their circles to refer. So the excuse that there aren't enough qualified people they know of is probably true,'' said Soon.

There are signs, however, that the demands of governance reform are beginning to break this cycle.

Before Sarbanes-Oxley, companies seeking a new director would only hire an executive search firm about 20 percent of the time, relying on personal referrals for the other 80 percent, said Soon. Now they use executive search firms about twice as often.

This may be a reflection of the perceived shortage of candidates. The reality, judging from the failings of the governance system a few years ago, is that there's always been a shortage of ''qualified'' corporate stewards and the added burdens of reform only underscore a long-standing need to look further and wider for good talent.

Bruce Meyerson can be contacted at bmeyerson(at)ap.org



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