Insights into Directorships and the Boardroom
An organisation’s board of directors’ oversight role is becoming increasingly important in today’s ever-changing global business environment. Heightened shareholder expectations in both the long and short terms have led to calls for shareholder value maximisation.
Besides, growing CEO demands around strategic issues facing organisations have added to the pressure being placed on the Board of directors.
Today, boardroom shenanigans and corporate governance receive as much attention as finance, marketing, and operations. It is for this reason why corporate executives are now required to provide members of the Board with up to date quality information for decision making.
These demands have meant that now, more than ever, organisations need to be aware of what is required to support the development and maintenance of a good, successful, and effective high-performing Board.
As pointed out by Tricker B., an effective Board “looks internally, for accountability, and externally, for strategy – the effective board looks to the past within the organisation, and it’s future on the market.”
For the OECD, “An effective Board of Directors is at the heart of the governance structure of a well-functioning and well-governed corporation, acting as the ultimate internal monitor. Ideally, the Board guides long-term corporate strategy, puts the key agents in place to implement it, and monitors performance against the defined strategy. Consequently, bad company performance and governance begin with a Board not fulfilling its key responsibilities”.
Meeting the expectations of an organisation’s various stakeholders is an essential task of the Board. Boards which do this successfully tend to have several common characteristics. They include:
The clarity in role and focus
High-performing and effective boards have a clear understanding of their role, scope of responsibilities, and expected contribution to the long-term success of the organisation that they serve.
The Right Mix and Board Balance
Boards are only as good as its members. A diversity of director strengths, be it in finance, marketing, global business, or any other area, allow directors to contribute to the board’s success in a unique but complementary way.
An effective Board is generally balanced in several respects, including size, age, tenure, competence and integrity, commitment to fiduciary responsibilities, skills, type of directors, and diversity.
According to the Institute of Directors, a performing Board is evenly balanced in several respects. They provide the following breakdown:
- Size: The optimum number of directors depends on the size of the organisation.
- Skills and experience: A diverse range of educational and vocational backgrounds enrich a Board’s discussion and help better decisions been made.
- Types of directors: Executive vs. non-executive roles – to ensure independent thinking, fresh perspectives, and greater oversight and accountability, it is essential to have a decent balance between ‘insider’ and ‘outsider’ directors.
- Diversity: a mix of ethnicity, age, and gender all contribute to better represent the community at large and will help a Board form insightful and representative decisions.
- Board committees: Well constituted committee help to critically examine organisational matters of concern.
- Conflict of interest: A policy on conflict of interest helps to avoid ethical issues
- Board training: Board training for all directors capacitates members with the right skills set.
- Procedure for Board operations: Procedural systems and processes help to create consistency in decision-making.
“The culture of a Board, its cohesiveness and ability to independently engage on issues as a team is what defines it.” Posited Shultz S. According to the Institute of Directors, “because a Board is made up of a diverse range of characters, the need to develop a strong culture is vital. Members don’t need to be friends, but they do need to be respected colleagues. Unlike most teams, dissent and strong individual opinion is an important trait on Boards as it helps members consider all possible options to arrive at the best possible decision.” Board culture, as affirmed by Browning P. et al., are sustained by three primary factors:
- Individual personalities of the board members.
- Larger context or macro-environment factors impacting the business.
- CEO leadership style.
Didier C. provides four main pillars for Board effectiveness. They include:
- Structures and processes
- Group dynamics
“It is important that Group-think tendencies are discouraged as it could seriously impact and hinder effectiveness as do disruptive or dominating members of the board.” He cautioned
An effective chairperson
Chairpersons are responsible for setting the tone for an effective Board as well as its performance culture. They are responsible for creating an environment conducive to director discussion, engagement, and debate. An effective chairperson also plays a vital role in establishing open and honest communication with the CEO. There are, according to Shekshnia S, “some personal characteristics which make some Board leaders more effective than others.” They include:
Humility and ego management
Self “restrain”, “non-domineering,” and “leaving room for others” are common traits of a chair during meetings which lead to effective decision making and constructive dialogue.
Availability and presence
Although creatively directing activities, the presence of the chairperson should be felt as little as possible. It enables other members to express their value-adding opinions openly.
An experienced chair is passionate about the Board members and the organisation and staff.
Patience and reflectivity
When leading a group of professionals, passion must be tempered with patience to help manage individual egos. Chairpersons must thus ensure that things are done properly and not necessarily quickly.
“Soft” and “hard” skills
The chairpersons’ role, as rightly pointed out by Shekshnia S, is “mainly about managing human relations with specific types of people: senior, successful, action-oriented, performance-driven, sophisticated individuals from different backgrounds and countries. Managing these relations require exceptional behavioral or “soft” skills. Among them, are the ability to listen, ask questions, frame issues and provide feedback”.
Respect, Trust, Candour, and Open Dissent
To be successful, Boards should be robust social systems. In his Harvard Business Review article, Sonnenfeld J. A. explains the importance of respect, trust, and candour in the building of effective and high performing Boards:
“well-functioning, successful teams usually have the chemistry that can’t be quantified. They seem to get into a virtuous cycle in which one good quality builds on another. Team members develop mutual respect; because they respect one another, they develop trust; because they trust one another, they share difficult information; because they all have the same, reasonably complete information, they can challenge one another’s conclusions coherently; because a spirited give-and-take becomes the norm, they learn to adjust their interpretations in response to intelligent questions.”
For Boards to function effectively, candid communication and mutual respect are critical. An essential link in this cycle of respect, trust, and openness is the board’s ability to challenge each other regarding their beliefs and assumptions.
“Respect and trust do not imply endless affability or absence of disagreement. Rather, they imply bonds among board members that are strong enough to withstand clashing viewpoints and challenging questions,” Sonnenfeld notes.
He adds that “according to data compiled by Eisenhardt K, and Bourgeois L.J., the highest-performing companies have extremely contentious boards that regard dissent as an obligation and that treat no subject as undiscussable.”
In addition to these characteristics, open communication, well prepared and attended Board meetings, and individual accountability are also essential traits of successful boards.
Each effective and high performing Board has its own uniqueness with its own set of strengths and weaknesses. While the above characteristics are common traits connected to effective and high-performing Boards, there is no one size fits all recipe for creating a successful Board.
Bell S. provides some helpful questions to consider when assessing Board effectiveness. They include:
- “Does the Board have an appropriate environment, diverse mix of skills, experience, and independence to ensure there are a robust but effective challenge and stewardship of the organisation’s purpose and strategy?
- Does the organisational design support and enable strategic decision-making?
- Do people understand their roles and responsibilities? Are individual directors formally evaluated in terms of their performance on an annual basis?
- Does the chair create an open and inclusive environment at meetings where all are encouraged to contribute? Is the chair’s performance appraised by their directors?
- Are management Boards clear on their roles and responsibilities? Is management information timely and precise?
- Does the Board have clear and timely access to information to assess both the performance of the business and its management of strategic risks?
- Does the Board provide independent challenge and plan for its succession? Is diversity and training of the boardroom considered in its planning?”
Leblanc R and Didier C. holds the view that Boards that are clear in their roles have a balance of skilled and diverse directors, have a capable and effective chairperson, are based on respect, trust, and culture of vigorous discussion and debate, and are focused on a continuous commitment to adapt and improve.
As also admitted by Didier C, the quality and effectiveness of Boards are “enhanced by diversity in terms of industry and professional background, as well as the diversity of gender, personality, and opinion. Diversity brings specific expertise as well as more innovation potential“.
The Board of directors’ core responsibility is to oversee the development and implementation of the strategic plan. This oversight role includes approving and capitalising the program, followed by monitoring its progress and results and adjusting where necessary. According to Leading Governance, the 10 top things that effective Boards have in common include:
- Understanding roles and responsibilities
- Reviewing of own performance
- Challenging appropriately
- Working as a team
- Timely getting the correct information at board meetings
- Committing to ongoing learning and development
- Having regular board turnover and excellent succession planning
- Providing strategic rather than operational support
- Engaging with others
- Leading, not managing
Shekshnia S., sees the process of engagement, enablement and encouragement as the three hallmarks of an effective Board.
- Creatively engaging members to make maximum use of their talents is key to Board effectiveness. The board chair must encourage openness, constructive dissent, and criticism during discussions. He cautions that chairpersons must be diplomatic but firm in managing ‘difficult’ and sometimes obstructive board members.
- Essential to effectiveness is the Board chairperson’s ability to creatively empower the members to work effectively as a group. This can be only achieved if the individual properly plans and prepares pre-meeting, in-meeting and post-meeting work.
- Encouraging and acknowledging Board members for value add and contribution is vital to keep them motivated, engaged and productive.
It’s equally important that Boards are aware of potential barriers to effectiveness. Barlow J, succinctly provides the below as some of the practices to avoid:
- Micromanaging less important matters
- Ineffective nominating committee
- Failing to rotate and cross-train board members
- Staying too small
- Hanging on to unproductive board members
- Failing to have a solid strategic plan
- Weak committee work
- Failing to do an orientation for new members
To conclude, the effectiveness of a Board, as rightly pointed out by Wixely and T., Tricker B is in “the results of its labors; outputs and not necessarily inputs, are the real measure of success. Key to this is the critical examination of the strategy, vision, and goals that emerge under the Board guidance to help meet the expectations of shareholders”. As business conditions become ever more competitive and complex, the board’s importance to effectively facilitate good organisational governance, shareholder success, and ongoing sustainability will continue to change and grow. Directors must therefore be willing and able to adapt to the changing environment.
>>the writer is an international chartered director and Africa’s first-ever appointed Professor Extraordinaire for Industrialisation and Supply Chain Governance. Independently recognised as one of the vertical specific global strategic thinkers on industrialization, supply and value chain governance and development, he continues to play leading academic and industrial roles in sectorial reforms both in Africa, and around the world. He is the CEO of PanAvest International and the founding non-executive chairman of MY-future YOUR-Future and OUR-Future (MYO) and the highly popular daily Nyansa Kasa series. For more information on COVID-19 updates and Nyansakasa visit www.myoglobal.org.