Board effectiveness & evaluation
In the first of ILA's "Short Talks" series, local corporate governance experts led discussions about three key topics related to board effectiveness and evaluation: the chair, skillsets and tenure. The event was held at Deloitte's HQ in the Cloche d'Or on 25th November, and featured presentations from Bill Lockwood, Yann Merillou, Monique Bachner, Henry Kelly, Karen Wauters and John Li.
A key part of a Board's role is collectively striving for a company's success. As a result, each Board should add value and to do so it will need to also accept its evolution. Board effectiveness and self-assessment reviews should be based on these goals. Given the leadership role of the Board’s Chair, this process naturally also begins with the Board’s Chair. The panel agreed that as well as being individually competent, each Director must also be a team player, bring people together, and be able to assimilate diverse information and use it effectively.
The role of a Board Chair requires considerably more work than that of a standard Director. It involves on-going contact with colleagues and executives to ensure continuity and coherence in decision making. Central to this is the relationship with the company secretary/governance officer, to ensure minutes are accurate, decisions and queries actioned, and progress reviewed at subsequent meetings. Given this hands-on leadership role, there was general scepticism on the panel about the idea of rotating the role of Chair – considering that this confuses the role of a Board Chair with that of a Meeting Chair – each being very distinct roles. There was consensus too that, in general, Boards need to work harder at ensuring effective succession planning.
Often the role of chair will fall to ex-CEOs, but it was pointed out that the personality requirements for these two jobs are not always aligned. The panel suggested that with will and training the necessary soft skills can be learned. Chairs need to be open to receiving feedback as well as taking the lead, and this can be facilitated with semi-formal post-meeting discussions with board members. Conversations can be franker in this environment, whether they are related to business matters or the work of each director and the chair.
The skillsets required by boards have widened considerably in recent years. Technical expertise remains important, particularly business knowledge, financial and legal training, with emerging focus now also on digital and IT awareness, ESG knowledge and strategic planning. Additionally, behavioural competences are equally important and should not be neglected: soft skills, being a positive influence, ability to synthesise information, nurturing ethical behaviour and so on.
To ensure a good spread of these attributes, there was a recommendation to create a “skills matrix”. This is a graphical representation of the various knowledge, competences and experiences ideally captured across the Board, and then filled in for each board member. Not only is this a guide to creating the right mix of attributes needed to generate good discussions and decisions, it can help provide benchmarks to help with board self assessment and board succession planning.
Board tenure - why does it matter?
The final panel focused on board tenure. The main discussion centred on length of service and its impact on actual and/or perceived independence of a director, as well as the importance of having independent external voices on a board. Boards should remain alert and make appropriate efforts to ensure that both their individual and collective expertise are refreshed, that routine, habits and other detrimental ways of thinking are challenged, and that the right amount of distance is maintained between the board and executives. It was noted, however, that term limits on directors are rarely found in industry or stock exchange codes – rather in internal Board guidelines or Codes. Strict limits on length of service come with potential downsides which need to be considered – for example where a director with valued or key knowledge and expertise would be required to leave a Board, or if key stakeholders such as major shareholders or even founder would have to leave their own boards. In general, the panel thought it best to avoid strict rules, and rather to use internal Codes and guidelines coupled with a rigorous culture of self-reflection and refreshment – both through education and training of existing Board members and though periodic rotation to bring fresh perspectives.
These talks developed themes highlighted in the ILA Board Evaluation - Effectiveness Survey conducted in 2018, and featured in ILA's Board Evaluations: Enhancing Board Effectiveness guide. Future Short Talks will focus on topics such as, Director independence, the board’s perspective on ESG, board culture, board committees, board materials and more.