Genius will be releasing a series of Board Effectiveness articles, drawing on our own experiences as Board evaluators, of what impacts different Boards and what aspects of governance and people cause Boards to deliver more effectively as the leadership team of a business.
For the first phase, we shall use the 11 C’s Governance Model created by Jeremy Cross as a framework to discuss the many myriad of influences on the team and their ability to work effectively.
This week is the second part of a many week series of addressing some of the key elements of Board Effectiveness – starting with these 11 C factors. Further factors will be addressed thereafter.
Part Two of Three
In our previous week’s article series, Genius addressed “Board Structure” and its influence on Board effectiveness and the introduction of the 12th C to the 11 C’s model below.
This week, Genius is addressing the three “Board Demographics” topics of Capacity, Capability and Connected.
To keep reading easy, only one of the three will be addressed each day.
Board Demographics addresses, within the physical people appointed to the Board, their collective demographic ability to deliver Board effectiveness.
An important capability is the of “independence of mind”. This is simple in itself but yet complex in reality. We are looking for a Board to behave as a collegiate team, but not to fall foul of groupthink, the key to succeeding is each Director brings to the conversation their independent opinions, their knowledge and experiences.
There is no value of independent thinking if it is not voiced and shared effectively. All Directors must speak up and must stand their ground for their views and beliefs. This will support effective constructive tension in debates and decision making.
There will not always be consensus; there will be times when a Director is outvoted and thereafter needs to toe the corporate line. If that person ethically cannot align to the corporate decision, resignation might well be the right answer.
2. Step up
Each Director needs to be heard, to have fair airtime and to be offered a safe place in which to raise topics for conversation. Every director must stand up and step up with their knowledge and experience for the long term sustainable future of the business.
Directors must proactively bring their contributions to the table for the benefit of the business.
In addition to bringing their abilities, they need to be able to communicate effectively such that the Board is able to engage with the contribution. This requires the right tone, and approach for each occasion.
The responsibility for effective conversations is threefold –
– first with the Chairman creating the right environment within the Board such that it is effective for all Directors,
– second is with the Director to approach topics in a non-judgemental and non-personal way, find the right words and framing to encourage conversation and onboarding of the points being raised and to follow through the debate and challenge to the point of assurance, action or decision
– third responsibility is with all other Directors, giving all their colleagues equal and fair consideration of their input and to support and build on the debate.
Directors need to be accountable for their actions. They need to be accountable to the role.
Directors under Law, Codes and Guidance are tasked to consider first and foremost the long term sustainable success of the business and in doing so to consider all stakeholders.
Directors are not appointed to attend meetings, they are appointed to be Directors of the business for 365 days of the year. Directors are expected to be considering the business at all times, using their acumen, insight, intelligence and intuition to bring value.
4. Professional Capital
Professional capital that a person has gained in their life is a specific value that some Directors can bring and that some businesses require at a certain time in their evolution. Professional capital can be described as the Directors networks, both social, business, education, religious, political, City, market, industry, extramural, etc.
This is the what they know and the who they know that can bring value to the business. There is no point in, for example, appointing a Chairman that has a knighthood for that fact alone, if they do not have all the attributes needed to be a good Chairman and their professional networks can bring direct value.
It is important that there is diversity of professional capital, it would be ineffective if all the Directors, for example, came from the same university; as any lack of diversity will risk group think and group behaviour developing.
The Director should bring that professional capital to bear in introductions, shared knowledge but also importantly to support their challenge and debate, their incisive thinking and to support their conduct as a Director.
5. Financial Expertise
This is one of the expertise needed on the Board of most businesses, but caution, there are many other expertise that most businesses need, for example, risk awareness, digital & IT, people – employees and customers.
It is with caution too that I debate this point – as most definitely you need some expertise but you most definitely do not require too much financial expertise. I have seen Boards completely incapable of delivering on growth goals due to the risk aversion mindset of too many finance trained Directors.
The financial well being of the business is critical for its long term sustainable success, and therefore this skill set will reside in the Financial Director, the Audit Chairman or another member of the Audit Committee. Other Directors may well have a good grasp of financial health metrics but not need to be professionally finance trained. All Directors should be able to contribute to the financial, budgeting, forecasting, goal setting debates of the business.
6. Technical Expertise
Within the Board, there needs to be knowledge of the industry. I caution though that the Chairman is not the person with the deep industry knowledge, rather than this knowledge residing in one or more other Directors.
A Chairman with deep industry knowledge often defaults to instructional leadership rather than mentoring the CEO, due to knowing the answers, telling the CEO what to do. I have witnessed several Chairman and CEO’s parting company due to the CEO not having the bandwidth and delegated decision making to run the business.
Having direct and correlated industry experience is valuable and executives not reaching out to such Directors for free consultancy, guidance, input and direction are foolish. The Directors are aligned to the same goal, know the business and are willing to help, without crossing the barrier of becoming executive in behaviour.
7. Strategic Expertise
Many Directors are not strong at being strategic, they are more comfortable being tactical or operational. It is not easy to think into the future starting with a blank piece of paper, doing the true blue skies thinking.
It is important to have a strong strategic thinker on the Board to support the business and most importantly to ensure the Board behaves in a strategic manner, adding value to the business by driving the goals and the long term sustainability.
When we hear the word diversity our minds tend to focus on gender first. Gender is one of the visible diversities discussed under an earlier article on Board Structure.
Gender is important as it brings to the table a diversity of approach, but equally so does the diversity of age, ethnicity and professional education. These are the diversities that are easy to determine, they are visible and factual.
The diversities less easily mapped are that of communication, cultural, behaviour, thought processes, knowledge, training, experiences, etc.
There are other non-visible diversities that might influence the way people think, some examples might include sexual orientation, marital status, being a parent, ideological framework, positive v negative disposition, network linkages, seniority in other roles, extramural interests, etc.
A Board needs a balance of many diversities and it is important for the Nominations Committee to be considering all aspects of diversity. A diverse Board will be a challenging Board to manage, it will need a strong chairing style to gain the greatest value, but that Board will add depth of value to the business.
We shall be dedicating a full article to this critically important topic.
Board Demographics also described by Jeremy Cross in his 11 C’s Governance Model as Professional or Social Capital. In this article, we have specifically looked at Capability of the Directors on the Board which narrows the discussion to their knowledge, skills and experience capabilities of each Director and that of the collective Board.