Opportunities to enhance board performance 

In A Call to Action for Boards, Jim DeLoach and Frank Kurre outline nine strategies to enhance board performance. Based on a global study by Protiviti, BoardProspects and Broadridge it makes the following key points: 

1. Deal with underperforming directors: Only 58% of directors and 36% of C-suite leaders believe sufficient attention is paid to the problem of underperforming directors. Boards should use self-assessment processes to identify and improve or offboard underperforming directors. 
2. Tackle obstacles to growth: The study identifies five critical growth obstacles: talent acquisition and retention; access to capital; new technologies; economic uncertainty; and disruptive innovation. Boards should engage in strategic discussions about each of these.  
3. Greater focus on crisis management: Boards need a stronger focus on crisis management due to potential geopolitical, economic, environmental, and social crises. US elections in 2024 could have global impacts. 
4. Increase attention to cybersecurity: The evolving cyber threat landscape and geopolitical tensions necessitate increased board attention on cybersecurity. 
5. Align with management on resilience: There is often a disconnect between board and management assessments of organisational preparedness, particularly in talent management, culture and third-party risk. Boards should seek to understand the concerns of the company’s senior leaders.  
6. Emphasise director preparedness and engagement: Boards should establish clear director performance criteria in their charters or governance guidelines. There should be clear expectations for meeting preparedness and engagement, and criteria for overboarding. Directors should periodically assess their commitment and ability to allocate time and energy to board service. However, information overload can contribute to a perceived lack of director preparedness. The board should set the tone by being clear in its expectations of management. 
7. Engage boards in shaping their meeting agenda: Board members agree less frequently than c-suite executives that they can influence meeting agendas. Use director-only sessions to increase engagement and influence. 
8. Self-assess board performance: At least annually, there should be a robust self-assessment of the board, each board committee and each board member to determine whether they are functioning effectively. The process should be confidential and anonymous, ensuring effective functioning and continuous improvement. 
9. Periodically evaluate board composition and onboarding criteria: Survey findings point to a need to assess whether the currency, experience and diversity of thinking in the boardroom are sufficient. Changing needs should be mapped against a skills matrix to identify gaps and guide the selection of new director candidates. 

You can read the full report (Global Board Governance Survey) here. 

Governance lessons from the UK Post Office scandal

The Institute of Directors in the UK has published The Post Office Scandal: A failure of governance, identifying the lessons from one of the worst miscarriages of justice in UK legal history. The Post Office scandal impacted the lives of thousands of innocent people. It undermined trust in existing frameworks of governance and business leadership. 

Although ostensibly an IT scandal, the root causes were failures in human decision-making, organisational culture and business ethics. Post Office governance—specifically the board of directors—proved unequal to addressing these issues.  

The Institute of Directors’ policy paper presents key lessons and takeaways for directors. It makes a series of policy recommendations for government, aimed at rebuilding trust in UK corporate governance: 

• Professionalise the boards of state-owned entities, requiring directors to undertake an ongoing professional development programme. 

• Commit their directors to clear ethical standards, such as those defined in the IoD’s Code of Conduct. 

• Reposition UK Government Investments (UKGI) as a champion of good governance in state-owned entities by emphasising corporate governance rather than corporate finance expertise. 

• Reform the law on computer-generated evidence, reviewing the presumption that computers producing evidential records work correctly. 

• Introduce a new corporate form for companies operating in the public interest, such as the Post Office, mandating directors to balance shareholder value creation with broader societal/stakeholder objectives. 

• Strengthen whistleblowing protections to include self-employed contractors, such as Post Office Sub-postmasters. 

• Promote the tech literacy of board members and appoint a Chief Technology Officer to the boards of government-owned entities. 

• Encourage responsible legal risk management by changes to the UK Corporate Governance Code, giving responsibility to a designated board committee. 

The vital importance of cognitive (vs. ‘visible’) diversity 

This is a short but important piece from the Farnam Street blog. Key conclusions: 

• Visible diversity is not the same as cognitive diversity. 

• Cognitive diversity comes from thinking about problems differently, not from race, gender or sexual orientation. 

• Cognitive diversity helps us avoid blind spots and adapt to changing environments. 

• You can’t have selection without variation. 

• There is what is referred to as a ‘Stormtrooper problem’, when everyone working on a problem thinks about it similarly. 

Dealing with boardroom conflict 

Most governing boards seek to reach a consensus on decisions where possible. However, as the Savvy Director team points out, getting to that consensus can be a messy process, often leading to a certain degree of tension. Tension—when it manifests as an open exchange of information, discomfort, discussion of difficult issues, questioning, energy and momentum, diverse perspectives, and engagement—is healthy. Tension is no longer healthy when it becomes acrimonious or degenerates into disruptive conflicts. This article suggests several practical approaches to keeping tension in the board room healthy and a productive component of board dialogue.

The problem with combining audit and risk 

Richard Westlake has joined the growing number of commentators questioning the combination of audit and risk in the same board committee. In Time to decouple audit and risk?, he highlights, in particular, the different skill sets needed for the two quite distinct functions. Financial literacy and an understanding of financial reporting and internal controls are vital for audit, along with the ability to get into the details. Risk requires a different mindset, acknowledging that real dangers are more likely to come from strategic over-reach or external events we can’t control, such as natural disasters, trade or shooting wars, pandemics, or shifting social attitudes.

 

Macro trends that are likely to challenge the governance of organisations

It behoves all board members to not only understand the critical characteristics of their entity’s operating environment but also look beyond that to see changes going on in the wider world. There are macro trends that, if not already, will affect the societies served by each organisation and the expectations of those societies that will affect the demand for each organisation’s goods and services. 

In What 2023 Taught Us: The Rules Are Always Changing, in 12 articles across five topics, INSEAD professors reflect on what we learned in 2023 about the changing world in which we operate as directors.