Constructively challenging and helping to develop proposals on strategy
Best practice Boardroom behaviour is a clear understanding of the role of the Board - the appropriate deployment of knowledge, skills, experience and judgement - independent thinking - the questioning of assumptions and established orthodoxy - challenge which is constructive, confident, principled and proportionate - rigorous debate - a supportive decision-making environment - a common vision - the achievement of closure on individual items of Board business.
One of the main criticisms of the ways in which Boards of Directors have operated in recent years has been a tendency towards groupthink.
Groupthink occurs when group members try to minimise conflict and reach consensus without critically testing, analysing and evaluating ideas. As a result, individual creativity, uniqueness, and independent thinking are lost in the process. An additional negative impact is that the group is deprived of balance and choice in decision-making.
Groupthink is most likely to come about where there is:
similarity in the backgrounds and viewpoints of group members
isolation of the group from outside sources of information and analysis
poor understanding of strategic thinking processes leading to premature solution formation and insufficient consideration of mutually exclusive options
The failure of a number of financial institutions to identify the dangers associated with the conventional patterns of financial management in the period leading up to the financial crisis in 2008-09 is widely cited as being illustrative of groupthink.
The New Non-Executive Director
The global economic crisis of 2008 and subsequent lengthy recession made many companies and their investors start demanding that every penny they invested demonstrate a tangible ROI. The contribution of NEDs to a company’s success started being scrutinised more closely. Consequently, NED selection processes have become much more rigorous and candidates are drawn from more diverse backgrounds. NEDs are being held more accountable, and are expected to commit more of their time and expertise.
Shift in Focus
A Harvey Nash NED Survey 2014/2015 yielded some important insights into how the roles played by NEDs are changing. According to the survey, 92% of NEDs surveyed reported that a huge part of board meetings time was dedicated to discussing corporate governance and risk, thus outstripping 43% who reported that current financial performance was top priority. This shift in priorities by boards is reflected in the constitution of NEDs. Even though NEDs with a financial background still make up the largest percentage of new appointments (27%), NEDs with a background in corporate strategy is not far behind with 21% of new appointments falling into this category. This is hardly surprising considering that the global economic meltdown of 2008 was brought about by poor risk management in the first place. Boards are demanding that NEDs play a more pro-active role in identifying corporate risks and give the requisite advice how to manage such risks. Interestingly, the survey found that just 1% of new NED appointments had a background in IT, indicating a shift from ten years ago when executives with an IT background were all the rage.
One of the biggest advantages non-executives bring is objectivity and a fresh pair of eyes, so they can ask difficult or insightful questions that force the executives to examine what they're doing. Organisations can tick many different diversity boxes, but it is this diversity of thinking that is paramount.
In which areas have the skills required to be a good non-executive director changed most in the last 3-5 years?
Understanding of the latest regulations/risk/governance - 75%
Strategic thinking - 38%
The ability to challenge positively - 33%
Financial literacy - 30%
Understanding new technology/digitalisation - 29%
Being influential rather than directive - 25%
Understanding international compliance landscape - 17%
In-depth sector expertise - 16%
The ability to work well in a team - 12%
Offering access to a network - 19%
In-depth technical/functional expertise - 7%
Other - 3%
A Non-Executive Director on your Board will help ensure competent and prudent management, sound planning, an adequate system of internal controls, adequate accounting and other records and compliance with Statutory and Regulatory obligations. A NED will also bring experience and expertise that will compliment the Board as a whole.
Philip Key has been a Board Director for over 25 years on SME Boards, currently sits on a Advisory Board for a significant US start-up and has achieved the Financial Times Non-Executive Directors Certificate, contact him on 07968 747156 or via this web site to see if we can help.