Ensuring the most effective board composition is a significant challenge for ambitious organisations of all types. Intense competition, volatility, reputation, and the risk of being blindsided by unforeseen events all weigh on the minds of board chairs, decision makers, and other stakeholders.
There has never been a more opportune or pressing time to assess the criteria for board effectiveness, says Ryan McCarthy, Audit Partner and Board Leadership Centre (BLC) Lead in Ireland.
Bring broad-based skills
If assembling a board is like putting together a jigsaw, just remember that the pieces of a jigsaw are not all the same shape and size. A corporate board should certainly contain individuals with relevant industry expertise, but an industry-dominated boardroom risks becoming an echo chamber and can be susceptible to groupthink.
Alongside industry specialists, accomplished generalists will help balance the perspective of the board, bringing insights from other organisations, other industries and even other markets. The aim is that the board is not always looking inwards at the minute workings of the company and its own industry, but also looking out at the wider world.
Generalists bring the added advantage of not being afraid to ask company management so-called ‘stupid’ questions whose answers might elicit valuable insights. In a boardroom situation, within reason, there are no stupid questions. On the contrary, lack of curiosity can kill a company.
Leave at the CV at the door
Everyone on a board has been recruited for the same reason: to help the company tackle its biggest issues and add value to the enterprise. Around the boardroom table, therefore, the fact that a board member may be a former (or even current) CEO or CFO in another company is really not relevant.
Even if an individual has been successful in another role, that doesn’t necessarily mean they’re the best qualified to deal with every issue that arises in their capacity as a board director. Early-stage companies may be tempted to recruit ‘big industry’ board members, for example, but a start-up may get limited value from a board member who talks about their time in a billion-dollar business.
“As a board member, you are not simply representing your previous career,” says Ryan. “Directors should bring their wealth of experience but leave their previous role outside the door; that’s an important distinction.”
Note, too, that good – or even great – managers don’t automatically make good board members. That’s because they may have an impulse to jump past the board processes to immediately try to fix any issue that arises.
Ryan shares the view of Tim Rowley, Professor of Strategic Management and Organisation at the University of Toronto and Co-Director of the International Director’s Programme at INSEAD Business School, who says a director should have “nose in the tent, hands out”, in terms of their relationship with the company. In short, he says “you should look like a ski-jumper”.
Directors should bring their wealth of experience but leave their previous role outside the door; that’s an important distinction.
Embrace equality of discussion
When the boardroom discussion gets going, it is critical that all contributions are treated equally, says Ryan. Since each board member is there on merit, no one opinion is more important than another.
That applies regardless of whether a board member is a significant shareholder of the company, its former CEO, or even the founder. It’s also relevant when the CEO and company management are in the room and there can be a tendency to end up in a presentation-led Q&A rather than a proper group discussion.
It’s important to avoid those situations because the best decisions can only be made through genuinely equal airing of opinions and honest discussion. A high-quality discussion can lead to a change in viewpoints and even, ultimately, a change in company strategy.
It certainly should not be the case that the board member who talks the longest or the loudest usually gets their way. Making sure that doesn’t happen may require board members to have the courage to challenge a colleague or question an established norm. That’s not always easy but it is the point of board participation, after all.
Reaching the best possible decision
Equality of discussion is essential because the opinions of one individual are unlikely to help in tackling the toughest problems that a company can face. Like any well-functioning competitive team, the objective for a board is to make better decisions – and achieve better outcomes – than any individual can do on their own.
In that vein, think of the boardroom discussion as a game of volleyball – where ideas are volleyed back and forth among the whole team – rather than a two-way tennis match, where one person prevails.
Through this genuine, in-depth debate, a boardroom team should reach a decision that even the smartest person in the room would not be able to make on their own, says Ryan. “It’s not about giving an opinion or diktat. An insightful board will corral the best brains and experience, develop a discussion, and collectively reach the best decision,” he says.
In short, everyone in the boardroom has a voice and must be allowed to use it. The behaviour of the board is a collective item; an effective board will certainly be greater than the sum of its parts.
An effective board will certainly be greater than the sum of its parts.
Continuous improvement
The process around board formation should reflect the fact that business is dynamic, and conditions, change says Ryan. Even the best board from ten years ago could not have foreseen all the issues of the last decade; similarly, today’s board may not be the perfect one in five years’ time.
That throws up an interesting question: are Irish boards really challenging themselves on what represents diversity of thought – and do they deliver on it? Notwithstanding the work done to date, there is room for improvement, says Ryan.
“There is a continuous conversation to be had around the components of a modern, effective board,” he says. “Times change and we can’t afford to be complacent.”
There is a continuous conversation to be had around the components of a modern, effective board. Times change and we can’t afford to be complacent.
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We understand the pressure boards and directors are under to get it right and to understand and to act upon the myriad of their obligations.
If you’d like to find out more about the support offered by the Board Leadership Centre we’d be delighted to hear from you.
