We met four times before approving a three-hundred-million-dollar investment in a new manufacturing plant.
Engineers challenged every technical assumption. Finance tested the numbers from every angle. The board examined every risk. When someone asked what would happen if feedstock prices rose by ten per cent, we paused the discussion until the answer was clear. Cash was not committed until a qualified person had answered every important question.
That is how organisations govern major capital decisions.
Years later, I watched a company approach an equally important decision in a very different way.
A senior executive called me after an interview. She had led businesses on three continents, transformed operations others had written off, and built a reputation for making difficult decisions. She left the interview wondering whether she had somehow failed.
She had not.
She had spent forty minutes trying to explain twenty years of executive judgement to someone with little practical experience in recognising it.
The contrast stayed with me.
No board would ask an inexperienced employee to decide whether to invest three hundred million dollars in a manufacturing plant. Yet many organisations are content for relatively inexperienced interviewers to decide whether someone capable of generating returns on investments of that scale should progress to the next stage.
Why do we apply more discipline to investing in assets than to appointing the people responsible for generating the return on those assets?
The answer, I believe, lies in the nature of the decisions themselves. Capital is tangible. People are not. We all accept that capital decisions require challenge, evidence and independent scrutiny. Yet when judging people, most of us believe our own judgement is sufficient.
Of course it is not. We all carry bias. First impressions, familiarity, communication style, confidence and personal chemistry influence every assessment we make. The purpose of governance is not to eliminate judgement. That would be impossible. Its purpose is to improve judgement by exposing assumptions and testing conclusions.
After more than twenty-five years in executive search, I have become convinced that this is where the profession has changed. Finding executives is no longer the scarce capability. Judgement is. Understanding industries through experience. Understanding leadership through having exercised it. Understanding whether a person and an organisation are likely to succeed together.
A good executive search firm does not replace a board’s judgement. It strengthens it. Like technical advisers, lawyers or financial experts in a major investment, its role is to bring informed challenge, independent perspective and experience to one of the board’s most important decisions.
Factories do not create value. Technology does not create value. Capital does not create value. People do.
That is why boards have developed rigorous governance for capital allocation. Assumptions are challenged. Independent expertise is engaged. Risks are tested before decisions are made.
Leadership decisions deserve the same discipline. Not because judgement can ever be free from bias. It cannot. But because the purpose of governance is not to eliminate judgement. It
is to improve it.
Perhaps boards do not need another committee. They simply need to ask whether the governance they apply to leadership appointments reflects the importance of the decisions they are making.
If a three-hundred-million-dollar investment warrants structured scrutiny before approval, should the appointment of the person responsible for generating its return warrant any less?
by Andrew Kris, Founding Partner, Borderless Executive Search
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