We have also altered the order, understanding that everything starts with the right people around the table. So, the revised seven principles are below. Last edition we talked about focus (#3) and here we outline #1 and #2.
- The right people around the table
- Role clarity
- Focus on outcomes
- The board leads
- Oversight is predetermined
- Learning is continuous
- Accountability and transparency
1. The right people around the table
The board ensures it has the right skills, diversity and competencies for the challenges ahead. Succession planning is active and ongoing:
First Who, then What—get the right people on the bus…
Jim Collins
A great board starts with the right people around the table, able to work as an effective team. We acknowledge that not all boards have full control over their composition. But, in all cases, boards should have an up-to-date perspective on the skills and competencies required. This sits across two areas: core director competencies and any specific knowledge related to the business and the challenges ahead. Those who control the appointment or election processes should have that information in front of them.
A board needs to be diverse. A broad range of background, opinion and thought is one reason you have a multi-person board. Gender, age, sector experience, background and ethnicity and—in some cases—representation are all factors when constituting a board.
Above all, a great board is a robust, effective social system. [1] It follows that, when recruiting, the overriding requirement is for people already competent enough to function within a group; who can both constructively challenge (each other and management) and work as an effective team, despite only very occasionally actually being together.
A regular question should be: Do we still have the right team? Great boards are not shy about getting people off the bus—either for inadequate performance or to match a shift in skill requirements.
High-performing boards have a great chair who understands the role. They are the Chief Governance Officer, there to get the best out of the people around the table. Succession planning always has an eye to the next possible chair.
2. Role Clarity
Board and management are clear about their respective roles; how each adds value. Their interaction is set in a clear framework and characterised by mutual trust and respect.
Ensuring the board of directors can provide effective leadership and control. [2]
Sir Adrian Cadbury
The basic legal duties of boards and directors need to be broadened to be operationally useful.
The board first makes clear what is to be achieved—ends or outcomes (principle #3: Focus on outcomes). Then, through policies consolidated in its charter and related delegations, it creates a framework that guides its own work and that of management. This transfer of decision-making authority to management must also state the limits to the choices (means) available.
A board is only together as a group less than one percent of the time: a part-time entity with full-time accountability. Here are the questions for the other 99% of the time: Is the board comfortable it has adequate frameworks and policies in place to ensure all duties and obligations are being honoured? Is management clear about what is to be achieved and when recourse to the board is required?
Above all, the board must avoid becoming another layer of management, either rehashing work already done, getting into the weeds or simply dealing with matters already delegated to management.
The board is there to add wisdom. A useful perspective on the transition from successful executive to value-adding director is the shift from knowing the right answer to knowing the right question and when to ask it. Sense testing and high-quality questioning are defining governance skills.
Boards should be conscious of and cautious about any drift to ‘weka governance’ [3]—going after matters that may be shiny and interesting but are irrelevant to the board’s role.
Notes
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- Sonnenfeld, J. What Makes Great Boards Great. Harvard Business Review. September 2002
- The Financial Aspects of Corporate Governance (known as the Cadbury Report) UK. December 1992
- For those outside Aotearoa New Zealand: the weka is a native ground-dwelling hen-like bird, highly curious, attracted to and prone to making off with shiny objects—car keys a favourite.
