With the challenges brought about by a global pandemic, many organisations have had to radically transform the way they do business. The path ahead remains filled with uncertainty and in the face of this “new normal”, boards and senior leadership teams will require different ways of thinking. In a recent report from the Deloitte Global Governance Program, they spoke of the beginnings of a new era of board stewardship. Is it time to take some bold steps and review your director refreshment practices?
Given the criticality of their role, the issue of director tenure has been an ongoing debate within business. The concern being that a board that has remained unchanged for a long period of time is at greater risk of not performing optimally due to the lack of new ideas and perspectives which can have consequences in terms of performance and oversight of management.
Researchers at Harvard Law School looked at board renewal practices and concluded that companies whose directors’ tenure was “mostly short” or “mostly long”, exhibited poorer performance and had a higher risk profile. They suggested that companies may gain benefits from maintaining a balance of experience and new capability on a board.
Lengthy director tenure also means that board vacancies tend to be rare and when they do occur, they are often taken by experienced directors who may have similar experiences and competencies as existing members, which can further impact the desire for diverse thinking.
Putting a number on optimal length of service is difficult and of course needs to be relative to the context in which an organisation is operating.
What levers are you using?
Traditionally, there are few “levers” to accelerate board refreshment. These tend to focus on retirement policies relative to an individual’s age, term limits around length of service and/or board elections, or based on performance i.e., board evaluations. A board may use a combination of these measures however they are not absolutes, for example a director who has extended their term or age limit may still be a valuable contributing member around the boardroom table.
Setting arbitrary rules or reviewing for the sake of reviewing will provide no real benefit. Here are some simple strategies that might help you to find the right balance in your director refreshment practices.
Consider introducing overboarding policies
Overboarding refers to a director who sits on an “excessive” number of boards which impacts their time commitments and ability to fulfil their duty. What may have been a manageable number of directorships pre-COVID could now be considered excessive as directors are reporting that they are spending more time on board responsibilities in response to the pandemic. Adopting a policy limiting the number of boards on which a director may serve, could be worth consideration.
Committee member and chair rotation
Directors who serve on committees are more likely to have a longer tenure as there is pressure to maintain continuity. These committees may also be the drivers of both board evaluations and boardroom recruitment efforts. Additionally, boards typically appoint more experienced members to the role of chair. Arguably this may reinforce a bias towards extended board service.
Introducing a member or chair rotation policy within committees can drive refreshment while also ensuring that there is bench strength on the wider board that can be called upon should the need arise.
Director and group evaluations
A robust board and director evaluation process is an effective tool for measuring both group and individual performance. Balance regular internal evaluations with third party providers who conduct an independent assessment of performance. While these reviews typically focus on the individual’s experience and skills, it is important to remember that the board should also be considered as a group in which everyone makes their own contribution, so putting the lens on group dynamics is also important. Consider using tools such as the Diversity of Thought Scorecard which quantifies the potential for wide-ranging thought diversity within groups by measuring pertinent characteristics within three categories: experiences, perspectives and thought preferences.
Future-focussed board competency
When reviewing the skills and competencies of directors during board evaluations, consider also in terms of the long-term strategic needs of the organisation and the market in which it operates – remembering that strategy changes. Rather than solely assessing directors on general governance competencies, look outward – does the existing board have the skills to provide oversight of ESG (environmental, social and governance) or DEI (diversity, equity, and inclusion) goals, or tackling specific challenges like cybersecurity? Understanding the necessary skills and attributes required around the table will also contribute to well constructed candidate profiles, when you are looking to appoint a new board member.
Benchmarking as a component of evaluations
Benchmarking both performance and board refreshment practices against peers and industry can be a useful and informative tool. In addition, keeping abreast of the latest trends and insights into governance practices contributes to the effectiveness and relevance of policies.
Emerging Director Programme
If you are looking to innovate and bring in new skills required at board level, consider the introduction of an emerging director programme – giving an opportunity for an emerging director (likely a senior executive new to governance) to act as a fully contributing member of the board (without voting rights). As well as creating a pipeline of future director talent, it can be a way to bring in a specific technical skill set or simply a diverse and fresh perspective. Similar in concept is a shadow board which is typically more internally focussed and consists of a group of non-executive employees that work with senior leaders on strategic initiatives – leveraging their insights and diversifying perspectives.
There is no single solution that will work best for all boards. The key is to ensure that board composition is aligned to strategy, that succession planning is current, and that performance is consistently reviewed, and intervention is acted upon.
In addition to assisting businesses with governance recruitment, Decipher Group provides a full range of board advisory services which can be incorporated into a recruitment approach or utilised independently as part of annual review processes.
The Decipher Team
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