Refreshing your top table can enhance your whole company’s performance
Investment companies and experts in corporate governance both set great store by the composition and overall balance of their Boards. But this is not just an issue for the large PLCs; it is also important for private SME companies to regularly review their board composition if they wish to stay on track.
At Edward Drummond & Co, we’ve noted a growing concern around ‘staleness’ at the top and about board directors overstaying their welcome. This really matters, as a lack of refreshment and diversity can lead to a dearth of new ideas and knowledge coming into an organisation, which in turn can lead to complacency and under-performance. Yet achieving a balanced skill set at Board level can significantly enhance a company’s performance while simultaneously reducing its risk profile.
In other words, this is real win-win territory for those who know how to seize it.
Planning for success
Most public companies and investment circles already have measures in place to flag up ‘over-tenure’ of company directors. However, removing and replacing board members simply on the basis of time served is likely to be counter-productive.
That’s why we recommend a consistent, transparent and regular review process, which assesses the capabilities around the Boardroom table against the short, medium and longer-term requirements of the company.
For example, annual director assessments to measure both individual and group performance in light of the company’s requirements, ideally with the assistance of an independent executive search or leadership assessment company.
For example, a more in-depth assessment of individual and group performance every three years, with additional focus on the strategic goals of the organisation. Again, having an independent external insight can help to flag up any deficits at Board level, especially in light of prevailing economic conditions and regulatory, legislative or market changes. For example, in areas such as data protection, cyber security and human resources.
Medium to long-term measures:
Companies may also choose to set out medium to long-term board renewal and succession programmes, in order to align with broader trends and market changes, to plan for natural retirement and succession issues, and to ensure that individual and group performance at Board level is supported and optimised.
For example, a company might set out a policy of nominating a minimum of one new Board director every three years or of annually benchmarking their current Board against an optimal Board composition.
Creating a balanced Board
According to Tony Kellett in ‘Board Dynamics’, there are four independent and inter-dependent forces which combine to make up the optimal Board capability or skill-set. These are:
- Strategic – the big picture or vision for the organisation.
- Operational – the detail around the actions and plans to deliver the strategy.
- Drive – the company accelerator and entrepreneurial ‘forward force’, which drives it around obstacles and towards achieving strategic goals.
- Risk Monitor – the company brake and objective governance, to identify risk areas and prevent the company from making mistakes or taking the wrong turn.
These four areas must remain in balance. For example, a Board leaning too far towards Risk Monitoring may become overly cautious, while too much emphasis on Drive could make for a reckless and cavalier leadership team. This underlines why regular review is so essential.
For once, disharmony rules
It’s worth noting that while Boards that maintain a balanced representation are likely to be the most effective, they are not necessarily the most harmonious – and this is key.
Board members who fail to actively challenge each other, and who believe that universal agreement on decisions is healthy, are at risk of becoming complacent. This is one of the problems with over-tenure; Boards that become ‘like-minded’ miss out on the dissenting voices and contrary opinions which create an environment where decision-making is actively tested and scrutinised.
Conflict can be necessary grit in the oyster – and vital to a company’s overall success story.
Creating a healthy multi-perspective culture
In building and reviewing optimal board composition, it is also important to consider BAME and gender diversity and to avoid homogeneity, which can arise from both conscious and unconscious bias.
A balanced Board will typically comprise a dynamic mix of personalities from a wide range of backgrounds, with varying interests and frames of reference, and different viewpoints and approaches to problem solving.
Companies can so easily fall into the trap of hiring ‘clones’ at leadership level on the basis that this creates a singular and unified culture. However, as with lack of balance, homogeneity can result in the absence of useful conflict.
Instead, companies should actively seek to reflect the diversity of their employees, their customer base, their shareholders and their business communities at Board level – although not at the cost of achieving the right balance of skills.
Tapping into external expertise
Even with a balanced Board, a company which recruits solely from its own sector runs the risk of exposure to a finite and ever-decreasing fund of knowledge. That’s why a Board may choose to bring in expertise from outside their immediate sector, to further encourage new perspectives and fresh ideas.
At Edward Drummond & Co, we have many years’ experience of helping companies to build and develop their Board leadership capabilities. We have partnered with a huge range of clients across a wide breadth of sectors and industries, from start-ups through to multi-national FTSE 250 organisations. In particular, we have enabled our clients to hire the best senior professionals for their Executive and Non-Executive Board positions, taking into account the candidates’ strengths across the four core skill areas outlined above.