Referencing

Board directors are members of the corporate elite and as with any elite group they are aware of their reputation and status as a member of that group. The appointment of a first-time NED to a FTSE 100 company is confirmation of this individual’s elite status

and reputation. This confirmation of status is given by the appointing Chairman. The referencing process that Chairmen engage in, and request ESFs to do, is largely done in the networks of the corporate elites. It takes the form of informal meetings which are off the record and often take place ‘after dark’ at social functions.

Chairmen described how, in identifying and selecting candidates at each stage of the appointment process, they personally went through an extensive referencing process to establish an individual’s reputation. Significant information triangulation was undertaken by the Chairman to check the robustness and reliability of reference information and the results informed his decisions on candidates.

I personally use quite a lot of triangulation. If I don’t know the person, then I make it my job to know somebody to contact somebody who does - who’s preferably had to work for them or work with them. So I identify who should know them well, that I know well, and who I know will give a thoroughly accurate and objective view. Because my relationship with that person I’m triangulating with is one where it can’t let me down. I don’t trust references unless I’ve triangulated them myself, or somebody whose judgement I trust has done that for me. The triangulation will tell you whether he or she is a good leader, a good colleague to work with whether they get the trust of other colleagues or at the first sign of problems do they disappear from hard work. (Chairman 2)

Chairman 3 indicated she had found an ESF whom she trusted to carry out due diligence on candidates and gain a lot of sensitive background information. The ESF would have been operating in the same elite networks as the Chairman thereby giving her confidence in the data. NEDs were not just aware of the informal referencing taking place through the Chairman and the elite networks, they also acknowledged that it was their reputational capital, in or close to the elite corporate networks, that was being referenced.

I think that’s just the sort of informal checking up process that goes on.

My mentoring process helped, as you know, the mentors become referees. I worked with two people, one’s a guy called X, he’s a well-known guy around the world. Another guy called Y who is a Belgian and who is also well known. They’re prepared to say ‘(NED Ross) is a great guy and he’d make a great non-exec’. This clearly helps. People like the

Chairman will have checked out with all the other people he knew at company X and he will have asked people I know who know people he knows. As I say it’s like Chinese whispers. I also knew a lot of headhunters who operate this circuit and I have a sort of reputation built.

(NED Ross)

NED Niels described how he was Chairman of the acquired company and they were used to working with him and he had worked on the prestigious corporate governance committee in Holland. His reputational capital was easily established and his appointment happened very quickly.

I have a number of NED positions on supervisory boards and I was being asked to stay on as Chairman of the company they took over. This meant they were comfortable working with me and the Chairman would have checked that out. I also hold what’s considered a very prestigious honour, which undoubtedly influenced them (and) gave me a good reputation out there. (NED Niels)

The less connected candidates were, the more extensive the referencing process was and the longer the appointment process took. The different experiences of candidates in relation to their connections was noted by ESFs

X candidate was known by a number of the Board and particularly known to the Chairman and Chief Exec. The Chairman will be drawing on personal knowledge of board members as to their views of the person and with X that made it very straightforward. Y candidate, I think was a harder one because they (the board) had to get it. I mean, she is not operating in those sort of rounds of the good and the great in the way X was, so she wouldn’t have been known and her reputation was not so well established in those circles. (ESF 1)

All three NEDs interviewed were aware that the nature of their referenced connections carried considerable significance for their ability to gain a place on a short-list. NEDs described the elite nature of their referenced connections and how this status helped to fast track them in the process. The elite connections were varied, corporate, professional, political and social. NEDs confirmed that the more connected and

influential their connections were, the more it benefited them as candidates for a NED role.

I approached her (headhunter) as I knew she was well connected in the NED network. The headhunter made the links in my C.V. Also, I have been a consultant for X (prestigious consultancy) and have experience in government relations. (NED Tami)

Note: The ESF involved in Tami’s appointment was interviewed as part of the pilot sample and it is evidenced in the transcript that Tami was given an introduction to the ESF by a FTSE 100 NED.

The referencing process, triangulation and due diligence processes, centred less on the business credentials of the candidates and more on their personal qualities and likely behaviours. The Chairmen knew these people had been successful in their lives to date, but they wanted to know how they had achieved success.. As established earlier, Chairmen seemed to assess not just the behaviour of potential candidates, but the values that underpinned those behaviours. The better known candidates were to the Chairman, the more easily he could assess these underpinning values. The more accessible this information was to the Chairman in his networks and hence the more connected a candidate was the more easily he could make a decision.

It is striking to note, from the data of the three first-time NED appointees, how aware the NEDs were of their established reputation. They were aware of their work experiences, the performance levels they had achieved, the strength and influence of their connections and how all of these were reflected in their reputation. Finally, they were knowledgeable on their fit with the appointment they had gained. This begs the question whether successful NEDs proactively build and manage a reputation that eases their way to the boardroom. NEDs showed considerable reticence in openly discussing this. However their interview data reveal that they had a full understanding of their reputational capital and what it contained. Further they understood their values and motivations and their importance in the fit with an appointment.

Everything I’ve done, I’ve tried to do the best possible and so could end it with clear achievements, so that people can think ‘well what she does, she tries to do well’. All these people at the top of organisations, they’re exactly like that, they’re driven. Doing it, giving the best you’ve got, doing

it the best you can. I think if they see that in a person regardless of whether it was in government or whatever, that’s what people are looking for. It’s what I mean by fit. How that attitude can help the business move forward. It’s not just what you’ve done. People appoint you for what they think you can bring to the table. And that’s why attitude is so important.

(NED Tami)

NED Niels knew he had been referenced in the corporate networks. He articulated why he felt referencing was so important as it would reveal deep seated values, in this case around decency and betrayal. He was confident he referenced well on these values.

There’s one thing there, if you do things, which the group doesn’t like then you’re out of the group. And that means you’re out of business. And it’s not very transparent and that’s why the politicians don’t like it, they want rules. But it’s very effective and it keeps people straight, because that’s how it works in your own family with your own relatives etc. If you mistreat someone then you’re out of the group. You’re not invited to the next birthday party or whatever and that’s what keeps people decent.

And that’s why it is important to select people from say the ‘old boys’

network for these kind of positions, because there’s one thing you know from these people that they are not going to betray you or do nasty things, because then they know it’s tit for tat. (NED Niels)

Similarly NED Ross described the referencing process and how the Chairman did it informally. He was also confident he referenced positively at a deeper level of values and quoted the Chairman saying ‘he’s one of the good guys’.

People build up reputations and people like to work with people they like to work with. People don’t spend time and don’t want to work with people that they don’t have a reasonable regard for, however that’s acquired.

You have to build up a reputation and people gradually get to know you.

If you’re a relatively unknown person and one of your referees is someone quite well known, it helps. And of course the Chairman checks these things out. (NED Ross)

The data suggest that the informal referencing process led by the Chairman is acknowledged and accepted by the NEDs. They acknowledge the need to have a

reputation with influential connections that can vouch for that reputation, particularly at the level of values. The data suggest that reputational capital, representing the total offering of a NED is a salient factor in the appointment process. The Chairmen in describing what they didn’t want in a candidate, pointed to the costs for them as Chairman of the board, as a member of the corporate elite in having someone with the wrong reputation. Getting the appointment wrong could cost their own reputation and standing in the corporate elite.

They’re just not suitable for here, they’re just not team players or they made a pig’s ear of that and that will cause us reputational damage or whatever. (Chairman 2)

You need decency and integrity you know. You don’t want people who have got their own agendas. It’s too costly to reputation…particularly mine. (Chairman 3)

The data from Chairmen and NEDs suggest that the most suitable candidates for a NED position are: candidates who are judged to have integrity; who know how to behave; who will not cause reputational damage to the board; and have no personal agendas or egos. It seems that the reputation of the Chairman is paramount in the appointment process. An appointment decision needs to enhance or at the least leave untarnished his reputation. He will seek out candidates whose reputational capital is laden with the values that represent no risk to him. Candidates understand their reputational capital and appreciate that it is this capital that will gain them an appointment in the corporate elite worlds of NEDs.

The concern with building and protecting reputational capital may go some way to explaining why the referencing process is subtle and informal and paying due respect to all parties and reputations. All parties know reputations are at stake and an unstated duty to be objective and truthful underpins the process. Chairmen described interviews as more of a ‘getting to know you’ session. These sessions moved from the conference room to the coffee lounge and eventually to a restaurant, an informal discrete setting.

NEDs described the flattery they felt when invited to interview for the position, viewing the interview as an exploratory pleasant conversation. They emphasised how there was little need, ‘to sell themselves’ and equally, the Chairman ‘did not give a grilling’ – it was more an exploration of each other’s values and motivations. Although all NEDs were flattered at the invitation, they were quick to point out that lack of success resulted

in personal enrichment from the experience rather than disappointment. Even here it seems NEDs are mindful of their reputational capital regardless of the outcome of the interviewing.

ESFs corroborate NEDs’ data suggesting that there was significant anxiety regarding reputations during the process. In driving the process Chairmen are acutely aware and fear media intrusion which could result in reputational damage to him, the board in question and indeed the company. Chairmen are cognisant that there is a risk in approaching a candidate particularly a high profile candidate that they may reject the approach.

There is a huge anxiety around the fact that a search for a major company’s NED will become subject to press speculation. Companies do not want to give a sense that various people are being approached and that there is any problem finding the right candidate. There are all sorts of reputational issues to consider when appointing a NED: The reputations of the candidate, the Chairman, the rest of the board and even the company are all at stake. Matters have to be dealt with sensitively and very discretely. (ESF 2)

Further evidence of concerns with the risk of reputational damage is provided by the ESFs. The references taken by ESFs are taken verbally only either on the phone or face to face but never in writing. This evidence concurs with the Chairmen’s views on the triangulation process. Reference information is triangulated at social gatherings, often ‘after dark’ or through discrete phone calls, through a process that is described as respectful in elite circles, discrete and opaque.