While the role of directors continues to evolve in line with the changing environment we operate in, the core responsibilities remain the same. Non-executive directors have the same legal responsibilities and potential liabilities as executive directors.  As enshrined in the 1992 Cadbury report[1] they “should bring an independent judgement to bear on issues of strategy, performance and resources including key appointments and standards of conduct”.  With increasing levels of complexity, a volatile environment and more demanding shareholders and stakeholders, it is ever more challenging to meet these responsibilities.

Korn Ferry[2] identifies key attributes of an effective director as:

  • breadth and depth of executive experience
  • highly independent and strategic
  • ability to ask challenging, often difficult questions
  • strong interpersonal and communication skills.
  • an understanding of operations, risk finance and technology

Directors often also possess specialist skill sets.   In recruiting directors to a board, these factors should be taken into account.

Insead[3] offers key questions that directors should consider to test the effectiveness of their board:

  1. Does the board maintain a proper ratio of governing vs. executing? (the focus of a board should be governing and maintaining oversight with the executive team / management team executing)
  2. Does the board possess the range of competencies / expertise to fulfil its duties and handle the most pressing issues on the agenda? Are there any gaps that need to be filled?
  3. Is the frequency and duration of board meetings sufficient (is there enough time allocated to the conformance and performance issues)?
  4. How frequently does the chairperson meet with management and is this frequency excessive, adequate or insufficient?
  5. Is the executive team competent/capable? If not (or if you are not sure) what action will the board take?
  6. Is the chairperson effective and does the board function professionally?
  7. Does the board make effective use of committees (eg audit, nomination, risk, remuneration)?
  8. Does recruitment/nomination of new board members adhere to a robust process and is there a clear “on-boarding” process that is regularly revisited? Are succession plans clear?
  9. Does the board perform a board review annually to reflect on its effectiveness (including addressing the questions above)?
  10. Think of a tough decision the board has made. Recall how the decision was reached and results were monitored. Was “fair process leadership” at play? Are there areas for improvement?

I would add two important items to this list

  • the importance of diversity on the board – age, gender, economic, and ethnic diversity and also diversity in experience, skills and attitudes. Why is this important?  Because it brings diversity of thought into the boardroom which can challenge the status quo and bring new perspectives. For example, given the rise of digital, consider the impact that a young digital native could have on an established board.
  • The importance of having the right information for decision making. Standardising board reporting so that it is crystal clear why a paper is being tabled, what decision is required and the evidence for that decision can save time (and paper).  Masses of large and complex papers rarely make for an effective board meeting.

The stakes are high for directors, and their role has never been more important.  Getting the right talent around the table and paying attention to the issues in this article will go a long way to improving board effectiveness.

See also article on ‘The role of the board’

[1] The Cadbury Report Financial Aspects of Corporate Governance 1992

[2] What makes an exceptional non-executive Director? Korn Ferry Institute, 2012

[3] https://knowledge.insead.edu/blog/insead-blog/12-questions-to-determine-board-effectiveness-6166