Key Takeouts
- In a session entitled 'Why board composition is top of the agenda' at the Governance Institute's Governance and Risk Management Forum 2021, Non-executive Director, Columbus Capital Leah Fricke said that diversity is a top priority for boards because of the changed and increased expectations of directors, and because of the changed environment. Boards are having to question whether their composition reflects recent changes to the business ecosystem and risk landscape.
- Though there is no one formula for an ideal board, Ms Fricke suggested curiosity, courage and compassion are three overarching attributes (among others) that every modern board needs to have in the current environment. Asked to nominate other 'key' overarching attributes, 'challenge' emerged as a key theme among the responses from attendees.
- Ms Fricke suggested there is a lack of appreciation of the value of a board skills matrix/the value of the exercise from both a board perspective and a shareholder perspective.
Board composition
What attributes do modern boards need now (and how and why is this different from what they always needed?)
A key theme of the discussion Chaired by Guy Gilead, Senior Sales Director, Nasdaq and Leah Fricke Non-Executive Director, Columbus Capital at the Governance Institute's Governance and Risk Management Forum 2021 was the change in the baseline expectations of board competency/skills/experience that has occurred in recent years.
Despite no formal change in directors' legal duties, expectations of individual directors has increased, Mr Fricke observed. It is now a baseline expectation she suggested, for every director to have the necessary knowledge/skills/understanding (for example the necessary legal, financial and industry insight) to competently execute their oversight role.
What has changed, she suggested, is that following the events of 2020, the focus on social issues has escalated and the influence of social movements (eg BLM, MeToo#) has increased. Diversity and more particularly, representation of diverse groups at board level has emerged as a 'mega trend'.
In consequence, Ms Fricke suggested that the conversation around board composition has shifted towards ensuring that there is visual diversity, diversity of views, and diversity of skills beyond 'traditional' legal and financial knowledge/experience and industry expertise. Boards are having to question whether their composition reflects recent changes to the business ecosystem and risk landscape. Ultimately, diversity is at the top of the agenda in large part because of the shift in expectations/environment.
No recipe for a perfect board, but there may be some overarching attributes that all boards should have
Ms Fricke observed that ultimately there is no universally agreed ideal from a board composition perspective. Rather what it will depend on the particular case.
Having said this, Ms Fricke suggested that there are some key attributes that modern boards arguably should possess. They are: curiosity, courage and compassion.
These attributes are key, Ms Fricke suggests, to the ability of board members to work constructively and quickly with each other towards a good outcome as proved to be so necessary in 2020.
Ms Fricke called on attendees to workshop and present their own ideas around the top three overarching attributes/essential skills they consider all boards will need over the next five years.
In addition to the three attributes put forward by Ms Fricke, key themes in the suggestions put forward included the following.
Challenge
- A number of attendees put forward various suggestions around the need for boards to challenge/create an environment that encourages/is welcoming of challenge. There appeared to be some diversity of views around the form this challenge might take: from boards 'turning things on their head' (pushing for organisations to do things differently), being a 'visionary' which was described as being the 'opposite of the status quo', to asking challenging questions 'in a respectful way' or being able to have 'confronting conversations'.
- On this point, Ms Fricke suggested that when thinking about challenging the way things have always been done, it might be useful to think about it as a long-term goal, rather than a short term objective that is best achieved through a number of conversations, rather than in a single meeting/discussion.
- Ms Fricke also spoke about 'relationship enhancing challenge' – managing challenge so that it is not conflict – but a constructive and collaborative process.
Bringing new thinking/'outside views' to the board
Another theme to emerge from the responses from attendees was the need for board to know/have an understanding of what stakeholders need/expect, it was also suggested that directors should be diplomats or 'empaths' and able to engage authentically. Likewise it was suggested that directors should be expected to bring a 'world view' (perhaps based on their international experience/experience outside the organisation/sector) to their role.
Other suggestions put forward included:
- The need to be 'inquisitive' ie the need for boards to provide 'thought leadership' to the organisation around future challenges
- Thinking about risk/using risk management 'as an enabler'
- Acting as a 'safety break or black hat'
- 'Intellectual grunt'
A missed opportunity: Lack of focus/evolution of the board skills matrix
- Ms Fricke briefly spoke about the lack of evolution she has observed in the development of/use of a skills matrix by boards and the lack of appreciation of the value in the exercise from a shareholder perspective and from a board perspective that she considers this demonstrates.
- Asked why boards haven't embraced the process/for her views on the reasons for the lack of development in the process over time, Ms Fricke said that some directors may see the process as threatening and/or simply do not see the need to justify their position on the board – ie they may feel entitled to their board seat and even view it 'as a retirement option'. Some directors who took on their directorship with no expectation that there would be an assessment process may be hostile to the introduction of a process that they may not feel that they signed on for.
- However, Ms Fricke pointed out that ultimately, there is value for boards in having a robust board skills matrix in place. For example, she suggested that it enables boards and organisations as a whole, to 'have a good answer for shareholders' around what value they as a collective board, and as individuals bring, if when/challenged. It also gives boards and organisations a good basis for long-term succession planning by identifying a 'wish list' of deficiencies as well as strengths.
Why the push back to increase diversity on boards?
Asked why there is still opposition to increased board diversity from boards, Ms Fricke suggested that it may come down to boards preferring the status quo. She also suggested that there may be a lack of recognition that diversity adds value.
[Source: This post is based on notes taken during the session: 'Why board composition is top of the agenda', Chaired by Guy Gilead, Senior Sales Director, Nasdaq and delivered by Leah Fricke FGIA FCG, Non-Executive Director, Columbus Capital at the Governance Institute's Governance and Risk Management Forum 2021 17/05/2021]