A Shake-Up in the Boardroom

Familiarity in the boardroom doesn’t always breed contempt, but it can encourage complacency and assumptions that alienate directors from a business and its wider market. A good chairman, in conjunction with the CEO, will be fully aware of this and won’t be afraid to shake things up.

In the UK, the Corporate Governance Code states that listed companies are required to carry out annual board reviews. When executed in the right way, they can provide a catalyst for change and an injection of new ideas.

Ian Durant, Chairman at London property company Capital & Counties Properties (Capco) and bakery chain Greggs, has been through five board reviews at three different organisations.

“If the chairman wants to get something done then the board review can act as a tool to make it happen, or if board members want the chairman to behave differently it can assist the delivery of that message,” he explains.

Adding to this assessment, Judith Nicol, Director of Leadership Services at executive search firm Warren Partners, says: “Board reviews provide that time to think. Being made to stop and reflect opens up possibilities for the business.”

According to Judith, reviews generally have the most impact when “you have a new chair, new directors or a new set of challenges that the board is facing”.

Glen Moreno, Chairman of international publishing and education company Pearson and FTSE 250 bank Virgin Money, explains how he carried out his first review at Pearson after he had been there a year: “I led the effectiveness review with the support of the board… We decided that to add value we should focus on four key areas that would make a difference to the company: governance, strategy, business performance and people. We built our entire board cycle and agendas around those four themes.”

The code also states that FTSE 350 board reviews should be externally facilitated every three years. For Glen, specialist external advisors can help address softer issues, like board chemistry. “People need to be able to open up and say someone speaks too much, the chairman is too dominant or not dominant enough; a good external advisor can help facilitate that,” he comments.

“Like most things in life, board reviews are what you make of them. They can either be expensive, time consuming and useless, or they can be creative and valuable. It’s the chairman’s job to ensure the latter.”

Making the most of it 

Boards are often criticised for box-ticking their way through evaluations, carrying them out purely as an act of compliance.

Glen says: “Practitioners ignore the code’s unique flexibility and attempt to apply it rigidly. The phenomenon we all refer to as box-ticking is spreading like wild fire… whether the review is internal, external or externally assisted.

“Boards are there to create enduring businesses that benefit customers, employees, shareholders and other societal stakeholders… We need to reconcile good practice with the realities of business life.”

Some board directors cite a lack of time as the reason for taking a prescribed approach to evaluations. Ian vehemently disagrees and says it’s down to attitude: “Some boards view the way they do things as satisfactory and don’t think anything needs to change.

“Board evaluations need to be viewed as a useful forum and a democratic process for improvement. Circulate the report after the review and give members time to go through it. The board may dismiss some points, but you have to discuss them and decide what should be actioned and why. Then, it’s up to the chairman to make sure they are pursued.”

For Charlie Wagstaff, Managing Director of Executive Membership at Criticaleye, it’s important to note that even the most competent individuals can learn how to improve, both from an individual and collective perspective.

“Bringing together successful people does not guarantee a successful board – the two are not necessarily aligned,” he says. “Constant evaluation is a necessity, as it can all too easily drift off course.”

While the success of a board evaluation rests heavily on the shoulders of the chairman, the chief executive must fully participate because it’s the CEO and executive team that will ensure change is felt across the company.

As Rob Margetts, Chairman at Britain’s mapping agency Ordnance Survey, says: “All reviews start and finish with the chairman; it’s their job to make it work and to get the most out of them.

“No one can argue over the virtue of improvement; you need a chairman who is both humble and self-confident so they can drive that. And if you show a real commitment to enhancement and effectiveness at the board level, it should echo throughout the organisation.”

These comments were taken from a recent Criticaleye Discussion Group, Board Effectiveness Review – Why Bother?, held in association with executive search firm Warren Partners.

By Dawn Murden, Editor, Advisory

Do you have a view on this subject? If you have an opinion you’d like to share, please email Dawn at: dawn@criticaleye.com

https://twitter.com/criticaleyeuk

Big Egos in the Boardroom

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

5 Ways New CEOs Make an Impact

The dilemma for many new CEOs is knowing when to start making big decisions. With the benefit of hindsight, they often realise that first impressions counted for a lot and changes could have been made sooner. Still, when looking back, it’s easy to forget how much information needed to be absorbed during those opening few months and what was required to acclimatise to the role.

It’s a case of getting to grips with the board, investors, other stakeholders and, if coming in afresh from another organisation, understanding the dynamics of the business. Criticaleye spoke to a range of senior directors to uncover five key tips to both handle the pressure and make a difference when taking the hotseat:

1) Look, Listen and Learn 

The first two to three months will require plenty of fact finding or, depending on the state of the business, myth busting. Alison Hutchinson, CEO of charity The Pennies Foundation, says: “Too many CEOs come in and state: ‘Right, I’m going to do this.’ They have perceptions of what they need to do, some of which may be correct, but I think it’s important they remember to listen and qualify their thoughts before they jump in.”

Customers, investors and employees, among others, will have to be engaged. “Of course, the board, as a key stakeholder, plays a very large part in that – a CEO will clearly need to understand their expectations and challenges,” she adds. “It is critical you understand facts rather than simply opinions.”

Steve Parkin, CEO of baby and child products company Mayborn Group, comments: “A new CEO who wants to create an agenda for change has to understand their business fully and have a feeling for the pulse of the organisation. Spending time with key stakeholders and understanding their views will be crucial, as the insight is normally found within the business.”

What you’re looking for is a balanced approach. Alison warns: “Don’t get convinced by perceptions until you’ve got a fact base that supports it, and make sure this comes not only from the financial data and the accounts, but from customers, employees and the board.”

2) Tackle the Big Issues 

If there is bad news, take advantage of being new and get the difficult decisions out of the way. Matthew Wright, CEO of utility company Southern Water, says: “You have a moment of high influence as a new CEO but it can dissipate through time pretty rapidly. If you go in somewhere and don’t do anything for several months, it can be interpreted as a vacuum or that everything is fine.

“You have to effectively make your mark and concentrate people’s minds, particularly in terms of the company doing the right things strategically, and whether the right team is in place to take the company forward in the way you want. Frankly, if you’re taking a long time to figure those things out, I think that’s a mistake.”

Mark Allan, CEO of student accommodation provider Unite Group, says: “You’re not going to get another chance – or a better opportunity – to be able to look at the business with a fresh pair of eyes and examine its operations and culture.

“You’ve got to make the most of that because inevitably you get sucked into all sorts of other things and so you don’t necessarily have the time or inclination to think that way… Sooner or later you start to become part of the organisation, whereas you’ve got this opportunity [as] a new CEO to have a slightly removed, objective view.”

3) Make Time for Strategy 

The danger for any CEO is that they are stretched too thinly, so they end up fire-fighting and dropping down into the business to address operational issues. Steve says: “You are always concerned that there are financial results due and initiatives that need to be delivered, and the clock never stops.

“So one of the biggest challenges is time and trying to have the ability to reflect. You move from being the doer to the leader, and therefore you must concentrate on finding the space to think about the business.”

Martin Balaam, CEO of IT solutions company Jigsaw24, says: “Being able to filter through the sheer volume of information and data that you take in – every document, report, presentation, brochure and invoice – is challenging.

“There are also customers, team members, shareholders, all those interactions and experiences which are new. You have to be able to find the key themes and focus on what’s important as the business is looking to you for leadership.”

Paul McNamara, Group Chief Executive for financial services concern IFG Group, says: “There’s too little time. You have a lot of demands on the calendar so finding space to focus on what’s important rather than just what’s urgent is crucial.”

It’s one of the reasons why building the right senior executive team is vital if you’re going to be able to execute on the strategy.

4) Don’t Act in Isolation 

The intense scrutiny of a new CEO, particularly if it’s your first time, will require some getting used to and it’s a mistake to believe you won’t, on occasion, benefit from the advice or experience of someone else.

Matthew says: “What is a surprise, and you don’t quite appreciate this until you are the CEO, is this thing of the buck stopping with you – it is quite a big deal. You feel a [greater] sense of accountability as a CEO than you would in any other line management role…

“You feel the highs and lows and they’re more inextricably linked, I guess, with your own reputation and standing, which means everything is magnified… If you’re on the executive management team there are people to share that burden, although certain issues may or may not relate to your area of the business. If you’re the CEO, every area is your business.”

It can be a challenge to prepare for this shift in accountability and perception. Mary Jo Jacobi, Criticaleye Board Mentor and Non-executive Director of engineering business Weir Group and financial services firm Mulvaney Capital Management, says: “Colleagues are no longer equals; you’re on a different level now and people will relate to you differently. It can be difficult to know where to go for advice and who to trust.”

Paul explains that it’s important not to underestimate the extent to which you can reach out for support: “There is external mentorship, the chairman and key individuals who [can] be trusted to stand back and look at the business in a new way… It comes back to that point about making time to, A, understand the business and, B, to find the space to think.”

5) Know How to Influence

An effective CEO will bind people together by creating a common purpose. This involves good communication and an appreciation that an authoritarian style won’t be beneficial for the business.

According to Andrew Minton, Executive Director at Criticaleye, a first-time CEO will often experience mixed emotions: “There is the sense of achievement at reaching the very top of the executive ladder, but then comes the reality check that all eyes are on you. It can be daunting as the way you influence and communicate as a leader will be completely different to what you will have experienced in previous roles.”

Mark comments: “It’s almost inevitable you will have come from an area with some degree of functional expertise, but you will be taking responsibility for the business in a much broader sense, including areas where you won’t have managed before.

“You need to let go of your previous specialism so you can spread your time effectively across the other functions, but also so that your successor doesn’t feel that they’re being constrained by your track record.”

It’s a case of knowing how and when to step back. “You’ll clearly have some early views on what you’d like to do,” says Paul. “But testing that, checking its validity, seeing if there’s something new you weren’t aware of that needs to be integrated into your thinking, and building a consensus in the leadership [around] the core agenda, are absolutely essential.”

Mary Jo says: “One of the most difficult aspects of being a CEO is learning how to let go of doing and managing, and starting to lead. The role is to encourage others to perform well, to deliver results, to be accountable, and to live the organisation’s values. You have only a short time to articulate your vision and start delivering it.”

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeUK

Finding Your Voice as a NED

Comm update_15 JanWhile landing a position as a non-executive director may be difficult enough in itself, more mysterious still can be what to expect around the boardroom table in those early days. The real challenge for first-timers in the role, especially if they’ve had limited interaction with NEDs in their executive career, is in knowing how to influence other directors and when to keep opinions to themselves.

“I couldn’t have been a non-executive director earlier on in my executive career because I probably wasn’t as confident as I needed to be,” says Cath Keers, Non-executive Director at Home Retail Group. “It’s important to gain solid boardroom experience as an executive director to build your confidence before moving to a NED role, because you need to be able to challenge constructively and act independently and impartially. You should also prepare to be a lone voice around the table as, sometimes, even the other NEDs might not agree with you.”

Anthony Fry, Chairman of UK dairy foods processor Dairy Crest Group, comments: “For people who have not spent their careers in boardrooms, my advice would be: learn how to read the room. It’s not just important to be right on an issue – it’s working out how to persuade your colleagues that you are.

“It’s also critical to learn how to challenge executives in a positive but not aggressive manner – many new NEDs make the mistake of confusing the need for critical judgement and comment with negativity which can often create an ‘us and them’ atmosphere.”

Even those with a wealth of boardroom experience must learn to adapt their approach. Michael Benson, Chairman of emerging market investment management firm Ashmore Group, comments: “Having been a pretty hands-on executive director, I had to remind myself what my new role [entailed]. Remember that the role of a NED is essentially to ensure the financial well-being of the company, to be the guardian of all aspects of governance and to approve the top-line strategy and monitor its implementation.”

Use your initiative

The skills required to be successful in the role are changing which means that a lot of work has to be put in if you’re going to make the grade. According to Joelle Warren, Chairman of executive and NED recruitment specialist Warren Partners, companies are looking for “broad experience to be able to assess and comment on a full range of commercial and governance issues… [and] as far as personal qualities, we’re looking for team players with small egos; people with self-confidence and good judgement…

“The Combined Code talks about five aspects of the NED role: constructive challenge; scrutiny of performance; risk assurance; remuneration and succession planning for executive directors; and stakeholder engagement. Look for opportunities to demonstrate these in your executive role – potentially with subsidiaries or joint ventures.”

Ian Durant, Chairman of property investment and development company, Capital and Counties Properties, comments: “The role has changed over the last five years or so. There’s a bit more governance structure and technicalities required, and a greater sense that institutional investors are interested and want to be engaged with what boards do and how they go about their roles… [so] you need a softer way of delivering your challenges in order to become more effective as a NED.”

The onus is on a NED to make sure he or she is up to speed. Carl-Peter Forster, Non-executive Director at engineering concern IMI, who took on his first NED role at Rolls-Royce in 2003, says: “I was very much in listening and learning mode to begin with, although I didn’t feel uncomfortable with this because UK corporate governance is really quite complicated these days. Everybody initially has to learn a lot… so I would recommend asking for formal training sessions in all aspects of corporate governance early on – and it’s very much up to the NED to actively pursue this.”

Don’t rush it

Dedicating plenty of time to the role early on will certainly help you feel more comfortable sitting on the board. Jeremy Williams, Non-executive Chairman of Assembly Studios, an international design and digital services company, says: “My first [NED] role was as chairman for a marketing services business… [and] I devoted a lot of time to this… and as a consequence felt comfortable from the beginning. As part of my contract I made a set of recommendations to the board after the first three months and [was] influential in helping to create a full turnaround and growth plans for the business.

“It takes care, confidence and a fully immersive induction programme, looking at the major challenges, issues and functions of the business. Over six weeks I sat in on key meetings within the business, be they business development, marketing, operations or finance related… had one-to-ones with all of the key managers and held video calls with those in the international offices.”

Ian comments: “Those early months are as much about getting to know the business and feeling comfortable about your own contribution in a board situation… Take your time, observe the behaviour of other NEDs, get to know the business as well as you can and develop credibility with the management – not just the board – by getting out and about in the business and meeting people.”

Bearing in mind the higher expectations and increased scrutiny now placed on NEDs, it’s a case of taking nothing for granted and going all out to do the hard yards in those early days to make sure you’re properly informed about the business.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

 

Are Women on Board?

The recent Lord Davies report, Women on Boards, encouraged leaders of FTSE 350 companies to include more women on their boards based on the needs and characteristics of their businesses. The report ducked imposing actual quotas and instead considered the factors that might bring about cultural change. On the one hand, there’s an increasing need for organisations to adapt their culture to be more welcoming to all-comers; on the other, perceived outsiders – women included – must demonstrate their willingness to engage with the group.

In the UK, the very idea of quotas is not welcome. This is backed up by discussions from within the Criticaleye Community. Indeed, the consensus is that all the fuss around the Report might end up being counter-productive: not only for women attempting to break the ‘glass ceiling’ (who may feel they are there not by merit but by default), but also for businesses striving for quality without any flexibility to make choices.

Jane Furniss, CEO of Independent Police Complaints Commission, says: “Perception seems to me to be key to all this; how women perceive themselves and whether they see being on the board as something to which they aspire crucially affects their approach. If what we see is largely a white male group we will wonder not only ‘will I fit?’ but also ‘do I want to?’. As more boards reflect the communities they serve, more women will aspire to join them and so talent not gender will be the key criteria for selection. Quotas are helpful in challenging mindsets and status quo but they create another set of problems and can be counter productive. I have always wanted the certainty that I got the job on merit – the challenge is hard enough without the concern that others are wondering – ‘did she get it to improve the gender profile?’”

The gender agenda is clearly part of a wider issue about boardroom quality – ensuring that the best people are reaching the top. But, at a time when boardroom decisions are placed under increased public scrutiny to deliver, does discussion about quotas distract us from the need to focus on quality?

Alysoun Stewart, founder and director of Oxygen8 Solutions Ltd, says: “The impact of the recession cannot be underestimated. Beleaguered companies have realised that they have to do things differently if they are to survive and find competitive edge – having boards that continue to think and act in the same old way will be a high risk strategy and this has, in many companies, put the issue of boardroom diversity and corporate governance into the spotlight.

“But the debate should not be limited to considerations of gender representation and quotas but should focus on diversity in its widest sense. Boardroom representation has been a comparatively narrow club for too long and the accelerating pace of change in the trading environment demands fresh approaches, fresh perspectives and fresh inspiration. That can only come by widening the gene pool to those who can bring new blood, whether that is as a result of gender, background or experience.”

Is there a glass ceiling?

In a survey of members of the Institute of Leadership and Management, 73 per cent of female respondents said they thought there was a glass ceiling for women seeking senior management positions, compared to 38 per cent of male respondents.

CEOs frequently report their inability to find a female candidate of quality to promote or hire, suggesting that the glass ceiling is more than mere perception. Or they might hire women as a last ditch effort to save an underperforming business in order to effect a ‘high risk’ turnaround. Certainly, women shouldn’t be pushed to the edge of a ‘glass cliff’. But, in reality, many women – like many men – flourish when put in this position.

For example, Stevie Spring, CEO of specialist publishing house Future plc, was brought on board after Future had overstretched through a series of print acquisitions to meet the ambitions of the previous chief executive, Greg Ingham, who wanted to double the size of the publishing company. Stevie has exemplified the requirements of the role and has been involved in much of the consultation for the Davies report.

She says: “There’s obviously a big difference between executives and NEDs and I believe it is the former that is the big issue – women that have reached the top and can bring P&L experience. The pipeline of women for executive positions is therefore a bigger issue because too many fall out of the workforce along the executive stream. But on the demand side too, boards still tend unintentionally to recruit in their own image – largely white, middle-aged men. It’s a NED’s job to bring different perspectives to bear on scrutiny and strategy. Diversity encourages these different perspectives. Nobody wants the furtherance of group think.”

V ‘Ram’ Ramakrishnan, Associate Faculty Member at Singapore-based business school MDP and one of Criticaleye’s Thought Leaders, says: “There needs to be a system that nurtures and encourages substantial populations of capable women executives to stay the course once they make it to the top. As with male directors I believe women have to be identified, coached and nurtured to become successful board members. It is strange that we spend twenty odd years training to be general managers but are expected to acquire directorial wisdom by god-given gifts overnight. Direction is a skill very different from general management and need to be cultivated by both men and women potentials.”

Is the talent pipeline open?

One outcome of the downturn has been to drive boards towards recruiting experience; non-executives that can bring value to the table based on the challenges they have encountered in the past. But are there enough women of quality in the pipeline to fill the quota?

Peter Waine, Partner at Hanson Green, says: “There is a general shortage of suitable NED candidates – men or women – and even that pipeline will soon dry up. I don’t believe that this is down to the perceived downside of the appointment-salary gap widening between executives and non-executives or because demands are increasing and the legal liability is being highlighted. Plc boards have become progressively smaller with the executive element, in particular, contracting. The result of this is that there will not be enough candidates who are current executive main board directors to go round. Hence, the chances for women and others to join these boards are likely to present themselves more frequently. But, how far do we need to stray from business in order to find those candidates?”

Perhaps the focus needs to shift from getting more women into the boardroom as NEDs to encouraging and empowering more women to aspire to the top? A female CEO – a leader – is inspiring for female staff: does a female NED have the same impact?

Tony Cowling, Criticaleye Associate and President of Taylor Nelson Sofres, says: “The cause of the problem lies with a serious shortage of women with upper middle and senior management experience, hence the proper solution to this problem lies with increasing the number of women who achieve middle and senior management roles and so gain experience to prepare them for board positions. The shortage of women on plc boards, both exec and non-exec, is only a symptom of the problem and not the cause. We have heard a lot about ‘equal pay’ and we know that problem is not yet solved. We have heard less about ‘equal promotion prospects’, but I am sure it is a root cause of the shortage of women in senior and upper middle management. If we want to solve the problem we have to address its root cause.”

Of course, there are cultural issues to address. As Gary Kildare, VP, Human Resources, Americas, Europe, Asia Pacific at IBM, explains: “Companies need to create an environment where employees feel they are being treated equally with access to opportunities, without the need to be treated as an exception. Success is about creating the right business environment rather than targets and quotas. I am not convinced there is an appetite for this approach.

“We absolutely need more women in senior roles: their skills, experiences and characteristics. Certainly there is a need to do more to facilitate talented women coming through organisations, to build a talent pipeline that enables quality people to compete alongside their peers for promotions, regardless of gender.”

What needs to change?

Jacqui Grey, Managing Director of Transition Ltd, a transformational change management, leadership, executive coaching and coach-training business, believes that there aren’t enough women on boards because, on the one hand, they haven’t been encouraged to get there by organisations and, on the other, they “get in their own way”, meaning a lack of confidence holds them back.

“Of course, government has a duty to encourage organisations to change and to hire and promote more women onto boards, as do organisations in taking steps to ensure the recruitment, development and promotion of women,” says Jacqui. “But women themselves must also step up to the plate. They must focus on an immediate and visible improvement in their confidence and networking skills and activities. The fear of ‘not being good enough’ must be overcome.”

Noreen Doyle, NED at Rexam plc and executive director at Newmont Mining Corp, says: “While women may be just as competent – sometimes more so – as men, they are not so good at profiling themselves among their peers. Many women are still of the mindset that networking is what you do once your day job has finished; men have long seen it as an integral part of their job. This needs to change and there’s a role to be played by senior women, like me, in mentoring emerging talent and conveying this issue to them.”

The issue of boardroom gender diversity should be embraced as a force for fresh thinking at the highest level, not as a compromise over quotas. But getting to the top table and influencing decision-making takes high-level networking – something that goes to the very heart of Criticaleye. Entry to the party doesn’t stipulate gender or race, only a willingness to engage in the debate and contribute.

Denise Jagger, Partner at Eversheds, says: “Women are recognising the need to help themselves and a number of networks are providing mutual support for their members and, at the same time, providing recruiters with a source of potential candidates. Rather than quotas, I believe informed encouragement by respected business leaders from, for example, the Members of Criticaleye is the best route to a sustainable shift in the composition of this country’s boardrooms.”

Ultimately, a diverse, balanced board will bring the right experience to bear on issues that require fresh impetus and a balanced opinion. Everyone must bring something to the table, but the route to getting there must be from a level playing field. In the end, a diverse group can only be good for decision-making and business in general.

The upcoming Criticaleye Discussion Group, Women on Boards, will examine many of the questions posed by the recommendations of the Lord Davies report and further discuss the points covered in this blog.

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

A Dream Board

Balance and diversity are quite rightly heralded as essential for creating a good board. The challenge in achieving this is often not a lack of will, but rather trying to find the people who have the knowledge, experience and commitment to push an organisation to the next level. This is especially the case for public companies, where onerous liabilities and personal risk remain extreme for board members.

Sir Peter Mason, Chairman of Thames Water and Senior Independent Director of BAE Systems plc, says: “The talent pool is getting tighter and smaller. What I see, certainly in my oil and gas business and in BAE Systems, is that we are looking wider in terms of hunting for the right talent – meaning outside of the UK. We want to find the best wherever we can, locate it and I think that will increase as the talent pool in the UK continues to shrink.”

This doesn’t mean that you shouldn’t strive to improve the make-up of the board or to assume that you won’t be able to find that non-executive director who can make all the difference. If you are fortunate enough to have worked in a boardroom that contains the right mix of individuals, then you can see how people take their responsibilities seriously, showing passion for the business and feeding off each other to focus on broadly aligned goals. There will always be antagonisms, but that’s no bad thing either (in fact, there should be disagreements). For many, the chairman is the vital element when it comes to forging an effective board. We asked our Community what they consider to be the essential elements of a ‘dream’ board.

Ruth Cairnie, Non-executive Director of the FTSE 250 engineering firm, Keller Group plc, says: “Board members should have varying backgrounds to bring in different perspectives and to achieve the right balance. They need to support the executives as ‘one team’ but also have the courage to bring in an element of edge and challenge.

“Respect, trust and openness are probably the most essential ingredients and the chairman’s role is key to engender this. People need to listen and be open to understand each others’ perspectives and even be prepared to adjust their own position; the chair sets the tone for this but each individual has to bring the right behaviours.”

It’s a point taken up by one of Criticaleye’s Thought Leaders, Stephen Davis, Executive Director of the Millstein Center for Corporate Governance & Performance at the Yale School of Management: “The right leadership and right composition are essential to board success. The chair needs to orchestrate meeting agendas in close consultation with executives and independent directors, and to ensure that sessions feature a sensitive balance of teamwork but challenging discussion. The best boards are composed not to achieve smooth relationships, though that can be important, but to reflect the real business of the company. For many firms, that means a need for a lot more diversity than exists today.”

For the Criticaleye Community, it’s evident that, aside from the importance of the chairman’s role, the common dominators for a good board are as follows:

  • Fit for purpose: the board needs to have a range of skills that are relevant to what the company does, but it’s also advisable to combine this with strong, independent non-executive directors who have experience elsewhere
  • Challenging the norm: a board should be asking open-ended questions. These are fundamental to the success of the company
  • Communication: everyone needs to be on same page (not to be confused with a harmonious environment)
  • Governance: weak corporate governance will hold your organisation back and could eventually destroy it
  • Creative tensions: disagreement is healthy for an organisation, provided it isn’t motivated by personal agendas

People power

A wish-list for the perfect board will probably incorporate a fine blend of industry expertise, mixed with some seasoned veterans who can spot both the dangers and opportunities for an organisation. Sir Peter says: “There has to be a good relationship between the executives and non-executives – to make a board coherent, there must be fluid communication between executives, board members and the chairman. Ongoing and routine engagement I think is really important to deliver a well-functioning board.”

A board must be engaged but not too close to operations so as to miss the big picture. John Whybrow, Chairman of AZ Electronic Materials SA, comments: “In board meetings, there should be a good understanding by the non-executives, in particular the chairman, of the company, the business and the markets…and the individual members should stay relatively close to those areas. It’s not good enough to just say ‘why?’ in board meetings – you need to have a fundamentally good reason to ask ‘why?’ and then be able to explain yourself.”

It’s here that non-executive directors have a crucial role to play. John continues: “As a NED, you need to have empathy for what the issues are out there and help those executives as much as you can; it is not easy sometimes to find a route through. Solving a problem is far easier when you are 100 miles away from it than if you are just a metre away – and boardrooms tend to be a long way from problems…However, execs and non-execs mustn’t be too close.”

Anthony Fry, Non-executive Director of Dairy Crest Group plc, CALA Group and Espirito Santo Investment Bank in London, notes that creating an effective board is not as simple as bringing together an assortment of brilliant individuals. “Boards work because of mutual respect and the relationships that are established around the table; a lot of that comes down to the behaviour of individuals.

“I happen to believe therefore that a degree of diversity – in its proper sense of diverse background, experience and skills – around the table is essential because that gives you different perspectives and, in a rather odd way, less competition. If you put a group of like-minded people around the table together, there will be competitive tensions between them – it’s the nature of the beast.”

Joe Darby, Non-executive Director of Premier Oil plc, agrees: “You’ve got to have the right people on the board, with the right skills and the right experience, to fulfil the particular role that they have. It is also important that the board focuses on the right issues – the key issues facing the company. They shouldn’t be bogged down in routine. They should focus on the key issues and make sure that they get those decisions relating to those issues right.”

Due process

It’s no coincidence that companies which run into trouble invariably have weak internal controls and governance procedures. Andrew Dougal, Non-executive Director of Premier Farnell plc, says: “I think a clear track record of good reporting practices and sound risk management processes, including the assessment of the risk appetite, which has been confirmed and vouched for by the auditors is essential.” However, that shouldn’t be confused with being formulaic and staid: “At board level, there should be a suitable balance of formality and flexibility. There should not be a rigid approach around the board table nor with regard to running the business.”

Sir Andrew Likierman, Dean of London Business School and Non-executive Director at Barclays plc, observes that a solid board never rests on its laurels. “You have got to keep up with good practice to make sure that you don’t sink into complacency and just assume you’re doing a great job tomorrow, just because you’re doing a great job today. One of the ways in which you can keep up with good practice is by making sure that you have some non-executives who have experience elsewhere so that they can then look at what good practice is.”

Indeed, success can present its own dangers for a board. At the extreme end of the scale, it can lead to unchecked largesse (remember the $6,000 curtain rings and $15,000 umbrella stands of Tyco’s Dennis Kozlowski in the US?), but generally it results in a crippling lack of clarity and an inability to execute on strategy. “There is a bit of a tendency for a group of people, given half a chance, to sink into the assumption that, because they’re doing okay now, they haven’t got to change anything. And I think for boards, as with everything else, you have to be mindful of where you can improve,” adds Sir Andrew.

According to Ruth, it’s a case of remembering why you’re there. She explains: “A good board must be both efficient and effective. Efficient is really the basics – necessary, but by no means sufficient. It means good scheduling, forward agenda planning to spend time on the right issues, focused board papers produced in good time, discipline in meetings to stay on topic. Effective is much more challenging. It requires having the right people and then having them work together in the right way.”

The perfect board may generally not go beyond wishful thinking and, in some ways, it’s a case of horses for courses as the needs of organisations vary enormously given their particular growth story (pre-float, PE-backed, public, etc) but that doesn’t mean you shouldn’t be striving to calibrate and refine your board to ensure your decision making has the necessary edge. John Whybrow says: “Boards will never get it right all the time. All we can do is put together a mechanism – a set of processes, which have a fair chance of helping us to get it right. We don’t know the future, we only know the past, and therefore we have to make judgments about the future – and sometimes we get it wrong.”

Honest mistakes are all part of the game. However, there are no excuses if poor performance stems from a lack of endeavour to improve a board by searching for those people who can genuinely bring something to the table. At the end of the day, who really wants to settle for second best?

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

Making Boards Better

Major business failures and, by association, those of their boards, over the past decade have brought about a plethora of new corporate governance codes such as the Combined Code in the UK and the Sarbanes-Oxley Act in the United States.  These codes are intended to be the parameters in which boards and their directors operate.

However, Professor Bob Garratt, Criticaleye Associate and author of the bestselling book on effective corporate governance, ‘The Fish Rots from the Head’, believes that corporate governance in its current form is a sham. “It does not deliver what it says on the tin for most organisations because they are not covered by the Corporate Governance Code,” he says, adding that the government needs to understand governance more thoroughly, a lack of knowledge illustrated by its failure to apply the Companies Act and Corporate Governance Code to all registered organisations – private, public and not-for-profit (as the King 3 code has done in South Africa).

Jim Wilkinson, Chief Financial Officer of SportingBET plc, agrees, “Assuming that the corporate governance rules that apply to listed companies are the most effective way of managing an entity, it makes perfect sense that these rules are invoked across all sectors, including governmental and non-profit organisations. However, there does seem to be a long way yet to go to prove that the corporate governance rules in existence have been successful in reducing the number of corporate ‘failures’.”

Worse yet, Bob suggests that civil servants, politicians and, sometimes, business leaders themselves, tend to look at corporate governance as a silver bullet to solve “any lack of organisational direction or management”.

Bernard Cragg, Senior Independent Director, Mothercare plc and Criticaleye Associate, agrees: “Corporate governance is certainly no silver bullet and, if misdirected, can have all the wrong consequences. The failures of banks are a good example. These were regulated organisations with more supervision than an industrial corporate. Having been on the board of a financial institution, they took the governance very seriously but, in practice, this resulted in not enough time spent on commercial realities and on risk.”

Sadly, most corporate governance tends to be looked upon as a box ticking exercise to be completed once a year to placate regulators. Yet, this attitude has not protected against failures. Indeed, at the time of its infamous demise in late 2001, Enron was 100 per cent compliant.

Bob continues: “Whilst this rather negative ‘tick-box’ attitude is still strong, there are some forces pushing for corporate governance to be taken more seriously. The seven non-exhaustive duties of a director (see below) codify 300 years of common law in the Companies Act 2006. Will the government and the courts have the courage to apply them?”

The Seven Duties of Directors

Each director must bear these seven duties in mind in all their activities and obtain professional advice if unsure of what is required in any given situation:

  1. To act within the powers of the company and to exercise powers only for the purpose for which they were conferred
  2. To promote the success of the company and, in doing so, have regard to the likely consequences in the long-term and to the interests of the employees
  3. To exercise independent judgement
  4. To exercise the care, skill and diligence expected of a director with knowledge, skill and experience
  5. To avoid conflicts of interest
  6. Not to accept benefits from third parties
  7. To declare any interest in a proposed transaction or arrangement

Sir Peter Mason, Chairman of Thames Water and Senior Independent Director at BAE Systems believes the following about UK corporate governance: “Personally I like the UK approach to board structure – a unified board rather than the continental approach of the supervisory board and an executive board or the American approach, where they’re essentially all non-executives. I think the UK has it about right.

“As to the importance of corporate governance codes in the UK, I certainly can’t see that codes and regulations would inhibit boards and individual directors from performing their responsibilities properly. I like to think that boards and directors do what is right at any moment in time anyway.”

However, while a legal framework for boards is essential, it is possible that corporate governance regulations can become overbearing and thus inhibit performance. “I am worried that we will again over-react to the experiences of the last two years and forget that, in many respects, there were no failures of significance in the non-banking sector and I would worry we will burden industry with more law and process when the system has actually worked well,” says Bernard.

Directors

Although guidelines, regulations and laws exist, and boards must comply, the onus of success and failure really falls to the Directors themselves: their relationships, their diversity of experiences, their skills and their passion for the role. Mike Turner, Chairman of Babcock International Group plc says, “Whilst the UK Corporate Governance Code is a helpful guide, the real key to good corporate governance is having the right people, and the right mix of individuals, on the board – people who are keen to understand the business and its markets, and who are prepared to give their views in a challenging but collegial manner.”

So what does a ‘good and compliant’ board look like? Anthony Fry, the Chairman of Dairy Crest Group plc, says that “a well performing board is a bit like a camel: you know it when you see it, but it’s very hard to describe to anyone who doesn’t know what a camel looks like! A great board is made up of a lot of different elements… fundamentally, though, it is about relationships, so it’s not just about selecting the best people and putting them around a table and assuming it’s going to work brilliantly. Boards work well because of the relationships that are established around that table.”

He continues: “I also don’t think that the performance of a board is about regulation or corporate governance – although that plays into it, based on what is officially expected of a NED. I think it is more down to whether the board directors in question want to do their role. At the most extreme level, given all the regulatory requirements on a non-executive, you come to the ludicrous conclusion that someone in that role is effectively a quasi-executive and the only difference is that they are not paid in an equivalent way. Some people simply can’t believe that I’m prepared to be a NED on a plc. They say ‘you’re carrying massive legal responsibility, you’re paid absolutely nothing and you’re treated like dog meat by executives.’ People can be very negative about it.”

In contrast to the role of executive, a director’s role is bounded by law. As many directors are former executives, they come into the role with their ‘executive’ mindset with no regard for the tight boundaries and long-term legal duties of a director.  In his book, ‘The Fish Rots from the Head’, Bob writes that, at present, “we know very little about directors and their effectiveness. A deeper issue in getting any code to improve the quality of the board linked with the quality of business output, concerns the lack of rigorous selection, induction, development, appraisal and deselection of board members.” To his point, as there rarely is an induction programme for directors, many simply do not know the difference between the role of Executive and Director.

To combat this Bob argues that directors should be given a formal induction process to explain the different knowledge, skills and attitude required for the role. There should also be rigorous development for directors and a performance evaluation process. “Much more external help is required in the rigorous and regular appraisal of the board, its committees and each individual director.”

It is important for directors to develop a broader mindset with more diversity seen around the boardroom table. Professor Sir Andrew Likierman, board performance expert and the Dean of London Business School, considers the following to be a well-performing board: “You’ve got to get the basics right. You’ve got to get the right people on the board and then structure it properly. Secondly, you’ve got to get the way the board operates right – that’s to say, in terms of the way meetings function, the way in which people interact with each other, the way the committees work, and so on. Thirdly, you’ve got to have the right kind of coverage. Are you dealing with the right issues? You must be dealing with strategy and the big issues of the organisation. We all know of organisations that spend their time fiddling around with the things that don’t matter, and should be aware of the province of operational management –that is a poorly performing board. Finally, you’ve got to keep up with good practice to make sure that you don’t sink into complacency and just assume you’re doing a great job tomorrow, just because you’re doing a great job today.”

Boards need to address the necessary balances, competencies, evaluations and learning needed to ensure more healthy organisations in the future.

Sir Peter identifies communication as the vital factor in a properly functioning board. “In my view, the key ingredient to a good board is simply that is has a good chairman to lead, but not dominate it. I don’t like to see politics or tension between board members – the shareholders’ interests should come first. It may sound like I’m stating the obvious but, to make a board coherent, communication between executives and board members and chairman and board members is critical.”

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk