Refreshing the Board

Both small and large boards have one experience in common: new board directors take a while to get familiar with the organisation to which they are providing scrutiny and oversight. As a newly-appointed board director observed: “What works is easy to see; what does not work takes time to unearth, to review critically, to ask questions about and to make a difference“. This challenge is however not admitted openly for fear of spooking the other board colleagues or the exec group, or indeed for newly appointed directors to be seen, however unfair that is, as not sufficiently competent. Well-functioning boards seek to address this challenge through good induction programmes as well as initiatives such as peer-mentoring which pair new directors with old ones, the latter of which can be especially effective and useful in larger boards although the risk of creating group-think remains worth watching for.

All this means that board refreshes are not simple or easy exercises. Having had some experience of board hiring over the years and now as a newly minted chair of nomination committee on one of my boards, I have been thinking about this a lot.

We can not always plan or foresee everything. One can plan for end-of-term retirements of directors — and the nine-year rule in the UK Corporate Governance code is catalysing many such ends-of-term — but one cannot always predict or plan for individuals deciding to leave when nobody was expecting them to. Life happens when we are making other plans, including succession plans. On most well-run boards the individuals concerned would apprise the chair of such plans to resign or otherwise leave early in sufficient time to allow for hiring new directors. And in turn the chair would keep the NomCo chair in the loop so as to enable the kickstarting of the work required.

Both planned and unplanned refreshes may benefit from providing some overlap period during which the board may operate at a slightly enlarged size. Of course there needs to be headroom in the board fee budget to allow for such an enlarged board to operate.

Each refresh is an opportunity. What got you here will not get you there: an over-used adage but one that holds good. Each upcoming board refresh is an opportunity to undertake a skills audit which enables a discussion about what the organisation needs for the next 5 or 10 years, keeping in mind its trajectory and sustainability over a much, much longer period than any director’s term. The CEO and the exec team with ownership of the organisation’s strategic plan would make vital inputs at this stage too.

Each refresh is also an opportunity to think about inclusion and board culture. Neither is a bounded problem. Well-run boards are increasingly aware of the value of having different view points around the table. It is worth taking a pause to ask if the board is happy with the culture, what elements it would like to retain (culture fit) and what it would like to take the opportunity to bring in (culture add). Indeed a tougher conversation is also possible – what elements the board would definitely like to get rid of.

Both these considerations shape the description of the board colleagues to seek. Which in turn leads to the questions about the best way to reach possible candidates who fit with or add to the culture, which headhunters or platforms to invite to bid for the recruitment round, how to brief them, and how to evaluate them to select one to go with.

Board refresh can be a second-order effect and almost certainly will have second-order effects. As mentioned sometimes board refreshes happen out of turn due to circumstances, a second-order effect of individual choices. But almost certainly board refreshes have second-order effects such as composition of committees. Ideally this would have been addressed at the skills audit step. Then again some things are just avoidable because of their compound disruptive effect such as loss of organisational memory and context e.g. changing both the auditor and the audit committee chair in short order.

In sum, even though board refreshes cannot always be perfectly timed, they provide an opportunity for boards to renew their purpose, their culture, and their skills for a positive impact on the organisations they oversee. That opportunity must not be missed.

(Disclaimer: These are my own views and do not reflect the views of the boards of JP Morgan US Smaller Co.s Investment Trust or Temple Bar Investment Trust or London Metropolitan University, where I serve as a non-exec director, and chair various committees.)