Yesterday, I attended a meeting of the National Association of Corporate Directors and heard some excellent guidance from an experienced panel of directors on board effectiveness.
One discussion topic was of particular interest: whether the composition of the board meets the needs of the organization.
Here are some of the points that were made:
- The board (led by its chair or lead independent director and the chairman of the governance/nominating committee) should determine the mix of skills, experience, and perspective that is needed for the board to be effective. This mix might include expertise in: the competitive environment; related laws and regulations; the culture of target geographies; manufacturing or other key activities; finance; risk management; technology; strategic planning; etc. This should be updated at least annually.
- The board (with the same leadership) should then assess its capabilities (the skills and experiences of its members) against its needs. Gaps should be identified, and actions taken to bridge them - which may take time.
- Rather than replacing directors in groups, bringing new directors onto the board every year keeps it fresh, as well as provides the opportunity to ensure the mix of talent meets its needs.
- The board self-assessment process is important, but even more so is the assessment of individual directors. Hard decisions must be made and acted on quickly to ensure everybody is contributing and the mix of needs is met.
- Recognize that members with longevity may no longer be as effective contributors as they were in the past. They may have grown to accept certain situations, rather than retaining an inquisitive mind.
- New members bring new ideas.
- Work to build relationships among the directors and with management. Don't assume that it will happen, and that they will work effectively as a team, when they only meet at quarterly meetings.
- Board leadership should act when a director talks too much (perhaps to show how smart she is), has language issues, or represents only a subset rather than all shareholders.
- Directors like to know whether they are making a contribution that is valued. They are human too. When the chair or lead independent director shares the periodic assessment (privately, not in front of the full board), there is an opportunity to enhance that director's performance.
- If the chair and other board members are only talking to the CEO at meetings there is a major problem. There is also a problem if the CEO only talks to (or listens to) some of the directors. That will create factions and problems within the board.
I would love to hear your views.