Five Common Challenges for Boards

Board Effectiveness

By John Barrington

At a recent boardroom lunch hosted by Barrington Consulting Group, I was asked a question about the five most common challenges that we see when working with boards.  While not based on empirical research, I suggested the following were some of the greatest hindrances to effective governance that we have seen:

(1) Lack of Role Clarity

One challenge facing many boards is ensuring there is clarity of roles between the board and the executive. This can be achieved through clear policies as to what is reserved for the board and what activities and processes are the domain of the Executive. An example of such policies are those as used by BHP Billiton Ltd, which are based on the Carver Policy Governance Suite. When we have implemented Carver with clients, one of the first and most enduring benefits we see is the improved clarity of roles and delineation as to who does what. If there are issues of contention between your board and executive, you may wish to consider the investment of time to address the confusion as to who does what.

(2) Director Tenure

While one cannot be prescriptive as to length of service an individual director can or should provide to a board, some reasonable guidelines can be established. This is akin to the number of boards on which a competent director can effectively serve. Some people may have the capacity to serve on only 3 boards, whereas others may be very effective on 5 – 7 boards. Some years ago there was a prominent Australian director who was serving on 17 boards.  One might reasonably begin to question the value of the contribution that person could have been making to any one organisation. It is the same in respect of length of service. Some people may lose effectiveness, or even interest after 5 or 6 years; some after 12 years. But whatever the number, and without being proscriptive, one might reasonably begin to question just how committed, up-to-date and therefore effective a person can be after serving say  20 or 25 years. Such length of service is not uncommon, especially in the community sector. Note that I am not questioning or challenging the competence of such long-serving and committed individuals. They are usually most competent and most likely very committed. But how can board renewal possibly occur when people are sitting around the same table for that length of time? How can the organisation benefit from new ideas, new ways of thinking, new perspectives and new challenges to the status quo? I posit that they cannot.

Double jeopardy for such boards arises when it is not only the directors that are very long serving, but also the CEO. Such an environment cannot possibly become anything more than a very friendly and clubbie type of environment.

(3) A Board of Directors or a Board of Influencers?

It is usually only in the final act that a board can really direct a CEO. For 90% of the time, the board directors are, in fact, influencers. When a board hires or fires a CEO, they are indeed directing an outcome and in matters of conformance the board must be directive if required. But in matters of performance, a board can really only guide the thinking of the CEO, influencing his or her thinking based on logic, sound argument and practical experience.  Many a director will know the challenge of this with a strong CEO and problems arise when boards as a whole, or individual directors, do not understand the behaviours required to influence, and contribute to, a successful outcome. Issues may occur with individuals who have recently moved out of, for example, a CEO role. Some people may be so accustomed to calling the shots and having their hands very much on the tiller that they cannot let go. At board level, directors may collectively be able to set the direction, North-Nor West or South East, but the steerage of the ship is very much under the control of the CEO. The ability to work together to achieve the desired outcomes and deliver the organisation’s Purpose is the art of the successful board-executive relationship.

(4) Lack of Diversity and Complementarity of Board Skills

Diversity is a key issue for Australian boards and while the focus may be currently on gender, diversity of course extends to age, race, social perspective, ethnicity and internationalism. The powerful board draws on its eclectic nature, if one exists, to provide different perspectives and new solutions to old problems. The related challenge in this is for the Chairman to ensure all voices are heard in a productive manner. This is not simply a case of giving directors air time to impress others, but to genuinely engage in value-adding fierce debate that jointly develops solutions.

(5) Lack of Socialisation

Boards are there to do a job, but the effective board takes time out of otherwise-busy directors’ lives to ensure some socialisation exists such that individuals get to know each other as people rather than as merely professional contributors.  In our experience, boards with a majority of interstate directors are far better at building social bonds than those that meet in the city in which all the directors are resident. Interstate directors often fly in the night before the meeting, have dinner together and speak widely on issues confronting their organisation, other organisations on whose boards they serve and their life experiences generally. This knits a rich fabric of not only perspective and wisdom, but also social relationships. Such relationships are important in everyday life and when things are going smoothly; but they are critical in turbulent times. The socially mature and robust board is better able to weather the challenges of turbulent times. An extension of this, and a great recent example, is Bob Every, the Chairman of Wesfarmers Ltd, taking his board to China in June 2012. There was no business to be done in China, merely it was an opportunity to get away and for the board to spend time together in a nation that is generally recognised as the epicentre of the 21st Century. What an investment; but what a progressive and forward looking board.

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