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 Three 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.
What connections does the business need, why and what value should be gained from such connections?
Being connected does not in itself bring value. Firs the Director should bring Director overall competencies of which their connections are one of their value adds.
Boards should be mindful of appointing “important” people who are connected but are not up to speed on delivering as a fully participating Director and all the responsibilities this brings.
A Director may be appointed for their connections created out of the experiences and people they have engaged with in their career to date.
For example, City connections. If a Director has worked in a company or on the Boards of listed FTSE 350 company, they will bring specific governance, market and network value. They will be known to brokers, investors, banks and consultants servicing that market, knowing who brings value and how the interaction of these players works.
Valued experience is previous involvement in a major business project, for example where a company had been taken to market, been involved in a management buyout, a merger or a takeover. Equally, where a business had expanded globally, changed strategic focus launched a new product etc.
Experience could be of a professional nature, for example, being a solicitor with specific experience, i.e. property law, housing, or mortgage laws etc. Other professionals are equally needed in companies, such as accountants, doctors, scientists, actuaries etc.
The experience a professional person brings will include Association affiliation, for example, Personnel, Risk, Governance etc.
Further examples of valuable connections would be for industry connections and networks, i.e. in financial services, for their connections in the global financial markets, regulatory connections, experience and knowledge; or business sector, or government circles, or within the NHS, or connections to key industry players, or global support networks, to mention only a few.
Delving into financial services, as an example, connections might be within a specific part of an industry. A company may need someone with deep global insurance experience to sit on an insurance holding company Board. Their knowledge brought to bear in debates, considerations and decisions are where the Board will benefit. The financial services sector, like most business sectors, having many sub-industry sectors.
To take the first example further, if a business had plans to list on the FTSE aiming to be in or close to the 350 category, having a Director on the Board who is known to this market will add credibility but will also add value in imparting knowledge about how things need to be done before the listing, at the time of listing and thereafter. This is invaluable where a business has grown from founder over time, or quickly and have only the business process knowledge they have needed to date.
The governance overlay needed when entering a regulated market is onerous and often not fully understood by a Board that has not experienced that world before.
There are many regulated areas from Financial Services (FCA, PRA and many others), Listing Rules for all listed companies, UK Corporate Governance Code, 2018 for the FTSE 350, Investment Trusts, Social Housing, Charities, are examples where the industry has its own regulations and governance Codes.
Connections could be within the customer marketplace, competitor activities or aligned industries, to support broadening or deepening market penetration; that Director helping conversations around sales, marketing, risks, challenges and direct introductions.
Connections could be political, supporting the business to engage in regulation formation, lobbying or understanding what is in the pipeline that might impact the business growth strategy.
For example, on an NHS Trust Board having a Director who has experience of NHS England, or in the transport sector, the Department for Transport connections being very valuable to understand the themes and focus of the relevant government departments.
This type of experience will allow for effective strategic planning and implementation, reduction of risks as well as having the ability to remain agile and proactive.
A valued connection often overlooked is global experience or knowledge of an international market or territory. Knowing how that other market will respond, how their culture will absorb the business, what regulations will apply and time delays caused, or how to engage local stakeholders and professional bodies are just a few examples of needing effective offshore strategies for a successful global growth strategy.
International trade experience being valuable to an importing and / or exporting company. Having experience on the Board of buying from or JV production agreements with the Chinese; knowing their culture, negotiating tactics and objectives are typical areas where a local UK company will be challenged.
Connections could purely be that person’s social network which, to be of value, would fall into one or more of the categories discussed above.
In addition, other social sources could include school, university, colleges, previous companies, sport, social clubs, charities, church, religious groupings, country affiliations, links through children, spouses, parents or other common interests, from a Livery Company to an ornithological society etc.
An extremely obvious connection to consider is that within the business. Are there Directors who have a connectivity into the business that is appropriate (not breaching governance of being a Director) and brings to the Board the value of that insight, knowledge and understanding of those on the ground.
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 “Connectedness” of the Directors on the Board which narrows the discussion to who each Director knows and together, the network of contacts of the collective Board.
This three-part series on Demographics has considered the value that a Director brings through their “Capacity”, their “Capability” and their “Connections”.
The next series of articles next week will address the 3 C’s within the grouping of “Board Attributes”.