The Board as a Competitive Advantage
No doubt, for some readers, the prospect of the board being a competitive advantage would come as a preposterous proposition. However, if we are serious about good governance in our organisation why would we not want a board that does its job so well that the organisation performs better than an otherwise comparable organisation?
The starting point is to think about how we populate our board. The process of board member recruitment varies greatly from one organisation to another. For example, some organisations get the board they are given as a result of relatively haphazard shareholder or member voting at an AGM. Other organisations rely on the random willingness of individuals to put their hand up and volunteer for board service. Still other organisations identify skill shortfalls and recruit explicitly to meet those perceived needs.
Bringing some deliberation and structure to board composition, to ensure it is up to the challenges facing the organisation, is an important first step. This often involves some form of competency assessment of the existing board membership and periodic board and director performance assessments to identify training needs for existing board members as well as to inform future recruitment. These activities certainly go a long way to improving board performance but are not sufficient if they are more in the nature of meeting compliance expectations ('we do it because we are told it is good governance practice' or ‘we do it because our owner (or funder or other influential stakeholder) says we should’) than the outcome of a sincerely held long term goal
Conformance is not the same as performance
The regulatory focus globally on corporate governance over recent times has led to one of two expectations - 'comply or explain' or 'comply or else'. Neither of these expectations has necessarily given rise to a measurable improvement in the performance of organisations. Certainly, rules and regulations may have led to improved protection for investors but they have not necessarily made organisations more effective performers. It is of concern that pressures to comply with the rules have led many directors to be more fixated on conformance than performance.
So, if rules and regulations don't lead to a measurable improvement in organisational performance through better governance, what is required? In thinking about this we can make a distinction between an ‘adding value’ board – which is a good thing to have - and a board that provides a ‘competitive advantage – which is a very good thing to have.
An ‘adding value board’
A board that adds value takes an active role in articulating organisational purpose and setting the strategic direction for the organisation. In a structured manner it also attends to its other governance responsibilities including prescribing values, setting performance expectations, creating a policy framework, risk management, performance monitoring, etc. Such a board is likely clear on its role and how it differs from the Chief Executive's role, has effective succession plans in place, and is well chaired.
An 'adding value' board also:
- contributes an outside view; it brings in an external perspective which is broader than the Chief Executive's perspective. For example, board members bring an external perspective of other industry sectors which enable the organisation to more quickly foresee sudden industry shifts or disruptive moves; they can draw attention to blind spots in the strategy; they not only bring their own experience to bear when informing the strategy development process, but are capable of validly critiquing management's strategic view;
- raises awareness of external (and sometimes internal) risks. Board members’ external experiences enable them to identify risks which may be overlooked by management;
- provides an added, and usually valuable, connection to stakeholders, the government, and to the wider society;
- brings credibility and engenders trust by stakeholders in ways that the management team cannot; and
- actively contributes to the organisation's innovation performance.
A competitive advantage board
A competitive advantage board is characterised by all of these attributes but it also has an additional characteristic which is highlighted by Nadler, Behan and Nadler in their book, 'Building Better Boards' (1): the social dynamics of board interaction. They point the way in commenting that "the key to better corporate governance lies in the working relationship between boards and managers, in the social dynamics of board interaction, and in the competence, integrity and constructive involvement of individual directors" (emphasis added).
As identified by Richard Leblanc and James Gillies in their book 'Inside the Boardroom' (2) and confirmed by our work with many boards, extremely important factors in how a board acts are:
- the way the board operates and its decision making process;
- the 'human factors' in its decision making process; and
- the 'fit' among individual directors and how they relate to one another as a decision making team.
It is these factors which particularly differentiate a competitive advantage board from an added value board.
When the board is a competitive advantage, its decision making process is superior because, not only is there diversity and competence around the board table but its social dynamics are healthy and effective. Board members have a chemistry that 'works', they have mutual respect for each other and are above 'game playing', views are expressed openly. In an environment of trust and honesty there is active challenging of ideas and a robust and fulsome dialogue. The board is neither too large nor too small. An active succession planning process ensures that the recruitment process maintains the desired characteristics of the board. In the event of an under-performing director there is a mature and dignified exit process. Board members are not 'there for life' but there is a limitaton on tenure that ensures regular revitalisation.
The competence, integrity and constructive involvement of individual directors
When seeking a new board member, the board checks its existing competency mix against the organisation's challenges and proposed strategic direction to ensure that the competencies sought for the board correlate to the future needs of the organisation. Not only is sector experience important but governance competencies and personal attributes are also given an appropriate weighting. Balance is also recognised as important. Are we looking for every board member to have governance experience or should we bring on a governance novice who brings other attributes to the table? During the interview process prior to appointment of a new member, to what extent have we tested whether we could work with this person if they were appointed? We must be careful to look beyond people ‘like us’. We need new board members who, while being ‘different’, we can trust implicitly, who will be honest and forthright but respectful in their contributions to board dialogue and whose demeanour will enhance the expected standards of board behaviour.
To arrive at a competitive advantage board we must take one step at a time
The starting point is a board that already adds value. If your existing board doesn't yet meet the criteria for an 'adding value’ board, there is a lot of foundation work to do. Once an 'adding value' board is in place the time, patience and effective leadership to develop the dynamics that give the board the mix to operate at a superior level, should not be underestimated. However, what organisation that values its continued existence would not want to aspire to this standard of performance?
(1) David A Nadler, Beverly A Behan and Mark B Nadler (eds.) (2006). Building Better Boards. San Francisco, Jossey-Bass.
(2) Richard Leblanc and James Gillies (2005). Inside the Boardroom. Mississauga, Ontario, Wiley.