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 Is Your Board Strategically Composed?

Where to start?

Over many years of working with Boards one aspect that continues to challenge Boards is selection and onboarding of new directors.

It seems to still elude Boards or their Committee (Nominations or Selection) as to the most appropriate manner to select a new director(s).

An Uncommon Pathway to Becoming a Director

It may be a generalisation but the road to becoming a director appears to be incredibly varied. It literally ranges from being quite informal, to a very structured and formal process, with everything in between.

Interestingly, as an aside, the pathway to becoming a director is not in itself a completely reliable predictor of whether that appointed person will be good, bad, or indifferent. Their performance in the director role is a more complicated matter. That is not to say however, that formality is not important, it is. And increasingly it becomes more critical where an organisation is operating in a complex, competitive and fast moving environment. The Boards of those organisations need to be systematic in their identification and selection of any new director. While informality may still play a role in the process, it would be minor, at best.

A Director of Choice

How the Board and/or Committee approach their selection task can speak volumes about the perceived value continuing directors place on ensuring there will be strong future governance performance.

The tendency for Director selection can be to either over complicate the process or wildly undercook it. Getting the balance right can make all the difference.

Importantly this is likely to be the first serious impression the Director gets of the organisation in action.

Taking a step back:

  1. What might the process say about both the organisation and inherent expectations of the new director?
  2. Is there an understanding of the Board’s current skill gaps and does the new Director plug those gaps?
  3. Are the Board’s expectations of the new Director clearly and effectively communicated?

Board Composition

Too often the focus is on what qualifications and tenure of senior experience someone has had. While important, it is even more critical to baseline Director skills across the critical governance areas required to support stewardship of the organisation today and into the future.

Initially, the Board needs to identify what are the skills and experience of the continuing Board members, to determine what are the gaps required to be filled by the new Board member in order to achieve the Board’s strategic objectives.

This begins the narrowing of focus to those with the specific skills and experience which can directly add value to the Board and deliver benefit to the organisation.

Beware the Misguided Over-reach

The tendency to wear rose coloured glasses when directors are invited to self-assess is legendary. This is one very critical aspect that cannot be overlooked if the Board seeks to undertake this exercise professionally.

Getting an independent organisation to run the Board composition assessment offers a greater likelihood of gaining the level of insights and usable data, that positively influences either the review and/or subsequent director appointment.

One other important consideration in all of this is the bringing together of a holistic approach to either evolving or transforming your board of directors.

Strategic Use of Independent Third-party Expert

While tempting to do an assessment inhouse on every occasion, if the right Independent Third-party Expert is engaged the value gained will far outweigh any cost involved. Ultimately of course this ought to be viewed as an investment decision rather than an operating cost one.

As a minimum, an Independent Third-party Expert should be able to recognise and accommodate in their report if directors are not being as open and forthcoming as would be helpful. This is something generally beyond being remedied with an internal process.

One significant inhibitor for internal assessments is that directors do, subconsciously, if not consciously have concerns that offering honest feedback which may be mis-represented or if publicly disclosed can damage their existing relationships.

The Value Proposition

Most directors would not be considered as governance experts, which may seem ironic given they are in the business of governance.

As an aside, research undertaken by Enterprise Care discloses that most directors do not rate advanced governance knowledge as a critical aspect of being a director. Make of that as you will, but it is somewhat a surprise especially given how governance is spoken and written about so regularly in public forums.

There is a compelling objective basis for engaging an Independent Third-party Expert to undertake the Board Evaluation. The following offers some reasons why:

  • Bringing objectivity to any assessment and/or evaluation process
  • Benchmarking of any prior internal assessments
  • Introducing new perspectives especially applicable latest thinking
  • Enabling greater openness and accountability
  • Encouraging frankness in expression of views from current directors
  • Harnessing of expertise and knowledge for options
  • Gaining greater confidence in reporting to stakeholders
  • Aligning with the organisation’s risk profile
  • Validating of recommendations
  • Streamlining of implementation of changes

Misplaced Confidence

A potential dilemma when Boards never seek outside assessments is their building of a false sense of confidence in their performance.

This misplaced confidence can potentially place the organisation at risk of ignoring, encouraging and misunderstanding issues that become serious or critical threats to the organisation’s operations. Of course, it is at that point it does the most damage to any organisation and can set back any plans for the future. The saying seems apt that something is only as strong as its weakest link. At a Board level these matters and the damage likely to be caused is magnified significantly.

The true objective of having change in the Board make-up is to seek and appoint better directors. Unless your process ends up delivering an appointment of a better director, at least compared with the outgoing Board member, then the Board’s governance practices will show signs of slipping and so too its performance.

This can and often will cause a negative knock-on effect with the organisation’s performance slipping as well.

Setting Your Board up for Continuing Successes

Often we come across overly simplistic self-assessments which if one was honest could be described as nothing more than a waste of the Board’s time. If one was kind, the only benefit might be that it achieves some sort of box ticking exercise, as it was incapable of delivering clarity around key governance practices and a realistic evaluation of the current and therefore Board’s future performance needs in the governance space.

The identification and prioritisation of the gaps between what is important and where improvement can be achieved, requires an action plan which enables the board and individual directors to commit to improve and fill these gaps.

Effectiveness of Board Performance

Maintaining a clear focus on the key governance issues for a Board to address, contrasted with an ‘audit-style’ approach, ensures Boards are attuned to the key drivers of governance.

Over the years a revised and streamlined governance diagnostic strongly connects with directors and engages directly with current concerns and existing challenges.

Linked to a curated interview format for all directors, ample opportunity exists to give voice to a range of key governance aspects and lead to a report that focuses on critical themes that add value for the organisation’s Board.

Most directors are engaged and invested in any process which commits to delivering insights into their Board’s high priority areas for improvement. Also an opportunity to realistically work on a governance plan that measures what the present governance gap(s) are and proposes solutions for consideration is worth pursuing and executing.

Please drop us a line or phone to explore your current Board or organisational challenges. We are happy to share our approach in not only resolving any Board composition issues, but any of your governance issues currently faced. Our breadth of practical solutions are inexhaustible! So why not test us on this.