The Fifa scandal shows what happens when individuals hold on to power for too long. Similarly, in the corporate universe, there are plenty of instances where bloated egos have stayed in charge, ignoring questions about succession, evading accountability and presiding over organisations that rot from the inside. Rules and governance guidelines are side-stepped as no-one has the courage to challenge the CEO’s decisions.
According to Alison Carnwath, Chairman of commercial property company Land Securities: “Boards become dysfunctional because of egos, personality clashes, poor communication and disagreements about strategy – problems will also occur when there is seen to be bad leadership.”
Ruth Cairnie, Criticaleye Board Mentor and Non-executive Director of Keller Group, ABF and Rolls-Royce, agrees that this “should not be about egos; it should be about everybody openly trying to decide what is best for the business”.
For a board to be effective, there must be shared objectives, openness and trust. Clear agendas should be set and longer-term concerns, such as succession, debated. The chairman needs to dictate the tempo of meetings and not allow the other directors to sit at the table in mute awe of a garrulous, overbearing CEO.
Brian Stevenson, Criticaleye Board Mentor and Non-executive Director at The Agricultural Bank of China (UK), comments that “if you’re the chair and you see dysfunctional behaviour developing and taking hold, you really have to nip it in the bud”.
A good company secretary will also be invaluable in ensuring the board is up to date and is fully cognisant of regulatory framework.
A wide lens
The time spent on audit, risk, remuneration and stakeholder engagement has created a lot of ‘process’ for boards. If a director is to fulfil their duties, the information they receive must not only be accurate but relevant. Too often, directors are bombarded by reports and struggle to gain a true sense of what is important for the business.
Ruth says: “There is a risk of the more process-related things, which have to be done, squeezing time for more fundamental discussions that are relevant and would challenge thinking more. But it is necessary to do both and it should be managed.”
Constructive criticism and counterpoints ought to be welcome. Sir Michael Lyons, Chairman of the English Cities Fund and former Chairman of the BBC Trust, says: “I attended a board meeting where, if you were sitting at the table as an observer, you might have struggled to be absolutely clear who was the exec and who was the non-exec. People were genuinely challenging each other on each set of strategic issues.”
Sir Michael explains there has to be mutual trust: “A clear, strong sense of common purpose is the key to a cohesive board. This is something that transcends the immediate strategic plan, it’s a sense of what you’re there for.”
He refers to his time at the BBC Trust, where he served as Chair from 2007 to 2011: “There were a set of challenges in the early days relating to bogus competitions and then, later on, there was a very high profile case about a programme that had caused offence.
“Those really brought the board together because we had to work out how we were going to deal with these issues in the glare of public and press attention.”
There is a line, however, which non-executives have to respect. Mala Shah-Coulon, Executive Director of Corporate Governance for professional services firm EY, says: “A NED’s role is more of oversight, so you should be providing constructive feedback and challenge, not getting dragged into the detail and implementation. If you do, the risk is that you’ll lose the distance that allows you to support, encourage and challenge.”
Mixed opinions
There needs to be a variety of individuals at the board table if stakeholder interests are to be protected. “If you have a board of Anglo-Saxon males between the ages of 50 and 70, they’re hardly likely to relate to a diverse customer base and how they see the business and the world at large,” says Brian.
Bringing in someone with particular know-how, for example digital expertise or experience of high-growth markets, is one way to broaden knowledge. Sir Michael comments: “You want people who are outside the sector to bring a fresh perspective and to ask questions, but you also need real understanding and experience of the specific market to make an effective board.”
In the final analysis, the composition of the board should fit the strategic path of the business. “If a company is facing bankruptcy, the array of crisis management skills will be very different to one that is very successful and looking to, say, explore new distribution channels,” comments Brian.
“You want a blend which includes diversity of background, experience and gender, for instance... so you are able to access the full range of potential contributions to help the company.”
Charlie Wagstaff, Managing Director of Executive Membership for Criticaleye, says: “While it’s only right to keep looking for ways to protect stakeholders, the various international responses to sharpen governance suggests that rules, guidelines and codes of conduct will only go so far.
“Boards must be able to collaborate, challenge and share knowledge if they’re going to navigate the strategic, operational and cultural complexities faced by global companies.”
What makes a board stand out from the rest is its ability to take a long-term view, to discuss improvements and locate any likely inhibitors to future success. Ruth says: “Strategy should be an important part of the board’s agenda, which is linked to other areas such as remuneration and risk.
“I don’t see strategy as a standalone, separate thing – it pervades everything that the board is doing.”
I hope to see you soon.
Matthew
https://twitter.com/criticaleyeuk
