BOARD SKILLS
ENSURING YOUR BOARD IS FIT FOR PURPOSE
How effective is your board skills matrix?
High performing boards regularly review the capabilities, behaviours, skills and leadership of their directors (individually and collectively).
Globally, boards face increasing regulation, heightened stakeholder demands and pressure to deliver on purpose and sustainability amidst turbulent economies, digital disruption and the threat of climate change, and of course the worldwide COVID-19 pandemic.
The need to ensure that the mix of directors' skills is evolving continually has never been higher. Board composition that reflects independence of thought, diversity of perspective and deep domain experience, is a vital component of governance effectiveness. A well thought-out board skills matrix is essential for best performance and informed succession. Most boards develop a capability matrix to track the composition of the board and to assess how well it is equipped to deal with the future. Ensuring the board enjoys optimal access to relevant experience and skills is a vital area of human capital risk management.
A well thought out capability matrix will ameliorate risk. It guides recruitment, succession and individual Director development, and provides confidence to external stakeholders that the board has an appropriate focus on improving its own performance and development. A hastily constructed matrix on the other hand might lead to superficial confidence in the board’s capabilities while hiding the absence of critical skills.
Below are our top tips to build and implement an effective Board capability matrix:
ALIGN
the matrix to the organisation’s strategic imperatives.
Determine those critical capabilities that will significantly enhance organisational performance as the strategy unfolds.
For example, a not-for-profit organisation in a crowded fundraising market might emphasise business networking, social media and direct fundraising experience. A listed entity competing in a highly competitive fast moving consumer goods market might look to product innovation. An energy or resources company might emphasise exploration experience in different geographies or expertise in alternative energy sources and how they might be brought to market.
AVOID
“entry-to-the-game” capabilities.
Avoid generic sets of skills that provide little added value as they represent threshold capabilities demanded of any director. For example, here is a list of the capabilities that BHP assumed common to all its Directors, which was published many years ago in its 2013 annual report:
Unquestioned honesty and integrity;
A proven track record of creating value for shareholders;
Time available to undertake the responsibilities;
An ability to apply strategic thought to matters in issue;
A preparedness to question, challenge and critique; and
A willingness to understand and commit to the highest standards of governance.
Any board would expect all of its directors to have these characteristics
DIFFER
capability requirements for the Board and the Chair.
Separate the capabilities required of the Chair from the rest of the board, as there are specific leadership demands on the chair role that deserve separate mention.
For example, not everyone on the Board needs to have the capabilities necessary for relating to external stakeholders, interacting with State and Federal Ministers or leading M&A negotiations. Clarifying the leadership capabilities desired in the Chair often provokes a useful and robust discussion in the boardroom about who ought take the lead on matters such as those mentioned above.
TEST
the matrix against eventualities
Consider a range of future scenarios to ensure the board axilla matrix is flexible enough to permit inclusion of capabilities that will become important depending on what happens to the organisation in the future.
For example, a “full steam ahead” scenario might require business acquisition and merger capabilities while an “avoid sinking” scenario might demand cost containment, customer retention, and cash flow capabilities.
FOCUS
on each Committee separately
Ensure each committee is well represented with the capabilities required across the entire board as well as the demands of that specific committee.
QUESTION
where to source each capability
Boards should consider carefully whether capabilities are best addressed by seeking them at board level, management level, or both, or whether specific capabilities might be best sought externally.
TARGET
development of directors
Your first matrix might represent a checklist only: that is, do directors have the identified background and capabilities or not? This will help highlight any current or future gaps in board requirements.
Your next revision, however, should include the ability to rate individual directors on each of the required capabilities so that each director, and in turn the board, can benefit from personalised professional development.
COMMUNICATE
goals and progress to stakeholders
As external stakeholders place entities under increasing focus, the need to be proactive in demonstrating that the board is cognisant of and flexible enough to deal with any challenges and opportunities is vital. Maintain and present a set of statistics in the annual report that show diversity elements such as experience, tenure, geographic location, gender, race, age and any other dimensions specific to your entity.
REVIEW
the capability matrix regularly
The Nomination Committee should review the board capability matrix at least annually to help:
Highlight opportunities to rotate directors through committees to broaden their experience and value to the board;
Identify specific gaps that demand immediate or staged recruitment;
Plan succession in an orderly way; and
Confirm that the elements embedded in the matrix remain highly relevant to the demands of the organisation and the external world.