Preparing Directors for duties and governance
Before taking the first board position, senior executives should be coached and trained on what it means to be a Director. At a minimum proposed, Directors should understand why there is a different contract to the usual employment one for a director and what unlimited liability means. Pre-placement should also focus on what the role is about and the skills that a director needs to have. At this stage, any gaps should be identified and closed. Structured training can focus on the 2006 companies act and section 172, directors duties. At this stage, it would be advisable to be placed as an observer on several external boards to start to become aware of the processes and methods of board life. Arriving at a board without some form of framing that being a Board Director is very different from being an employed executive.
A functioning board and Directors depend on an open mind-set and continual learning. All directors should have an on-going plan of development which will involve more extensive reading, being coached and coaching, sitting on other boards for diversity and development of specific skills that are directly relevant to the future of the company they represent. The board needs the diversity of age, race, gender and abilities. Members should have a solid professional background to cover all the skills the company needs today and in the future to thrive.
The skill of an experienced Director is to determine what is not on the agenda. Therefore Directors need specific training and skill development to be able to see beyond the numbers and reports and determine what is not being reported on. Further, to challenge the providence and lineage of the data back to systems and be able to decide on bias and rewards that frame individual decisions which are presented for “recommendation.” Directors need to move beyond decision making to complex judgement about the future. Directors are never a finished product and must work hard to remain current and curious. They are responsible and accountable and must deliver the future that they are tasked with delivering.
A critical difference from being a senior executive to being a director is taking on the responsibility for Governance. Governance falls into three categories. First, do we have a true north star and are we heading towards it. Second, is the vessel we are travelling in and the team fit for the task and able to perform. Third, how do we and our eco-system journey together towards our north stars without destroying the route for others?
In terms of governance, the vast majority of history and bodies of work address this question, have we got the right north star and are we heading towards it. It is the 101 of governance thinking. It is often challenging to question the mission, purpose and values. Still, it is critical to continually re-evaluate them, especially when they are only on the agenda during a strategic review and usually assumed that they are fit for purpose.
The second part is building on that fact that the direction is right and we are on course but are we as a team, company and is the eco-system fit enough to execute it. Are we looking at ourselves in the light of the driving mission, and do we have the right team and skills. Where are the gaps? Just being faster, quicker and cheaper does not mean we will achieve our mission. Indeed the brittleness of complex dependent highly efficient supply chains that break with systemic changes shows that we have not sufficiently questioned our fitness to deliver.
Third, in rushing to get to our north star, is our north star aligned to others in our eco-system and are we burning the path behind us. Is our eco-system not viable in the long run and we are leaving the road open for others to build on? Have we got somewhere on our journey but are we now stranded as we have burnt all the resources to get to where we are. Governance is not marking the CEO and CFO reports and asking a few questions. Governance is not compliance.
Being a Director was more straightforward in 1980; however, along with more complicated Governance requirements, the role is how complex, challenging and requires continual improvement.
Additional noteThere are many other aspects to consider that fall outside this picture: agency problems, the role of regulation, active-passive board engagement-related issues, how culture is consistently embedded across the company to reinforce corporate purpose and strategy alignment, how companies can be held accountable for ESG-related challenges (becoming better ancestors) in the absence of standardized and clear set goals, performance indicators, and methodology to measure performance against targets, how the board can balance the power of different (sometimes contending) interests of different stakeholders and the list can go on for a whole book
The environment is complex. There are so many assumptions. Pre-existing and accedemic models to understand governance do not capture the real practice of governance. Compliance is a substitute for governance, and the exercise of prudence and good judgment is thus replaced with box checking.