Board composition best practices: Ingredients for a better board

Article by Navin Prasad

 

Corporate governance refers to the systems that direct and control an organisation. Governance enables authority to be exercised appropriately and for the people who exercise it to be held to account.

One of the key principles of good governance is getting the board composition right for the organisation. If you’re baking the perfect cake, a number of factors (the right mix of ingredients, the quality and quantities of those ingredients, correct timing and so on) all need to work together to ensure a good result. Likewise, having the right mix of people with the right combination of skills for an appropriate length of time is crucial to a board’s effectiveness.

But remember: there is no one-size-fits-all ideal structure and composition for boards. Instead, the directors must decide what form their board should take and consider how this might change over time.

Here are some best practices to consider when approaching board composition.

Appointing directors

Directors are generally:

  • appointed directly by the board; or
  • elected by the members.

It is a good idea to set out the process for appointing directors in a policy, and make the policy available to stakeholders, especially members. This:

  • promotes transparency
  • helps prospective directors to understand the process.

Changing directors

It is a good idea for a director’s tenure to be limited to encourage renewal, therefore directors are generally appointed for a fixed term. It’s good practice to stagger board tenure so that the number of departing directors, new directors and ongoing directors is balanced.

Boards should consider:

  • how a director’s tenure may impact their performance, particularly if serving for ten years or longer
  • how the mix of tenure on a board might affect the retention of institutional knowledge
  • that directors also play an important role in mentoring their peers and so it is important that new directors can work with, and learn from, more experienced directors as part of their induction process.

Number of directors

Boards need to have enough members to:

  • fulfill their responsibilities
  • access the skills and experience they need
  • facilitate changes to composition without major disruption.

An organisation’s governing documents and any laws that apply to it may set out requirements about the minimum and maximum number of directors a board may have. There may also be requirements about how many directors must be present at a meeting (a quorum) for it to be valid.

Measuring skills and experience

To understand what skills they have, address shortages and forecast future needs, many boards quantify and record their directors’ skills and experience in a skills matrix. The skills matrix can also be a useful way to identify areas for board training, development and succession planning.

Boards should consider what skills and experience are relevant to them in the context of their purpose and strategy. While technical skills are important, boards should look beyond these to consider directors’ other attributes, such as a passion for the organisation’s purpose and soft skills including communication, negotiation and conflict resolution.

Board diversity

One of the benefits of having a board is that it brings several minds to focus on a shared purpose. Boards should aim to reflect a mix of personal attributes in their composition. These attributes may include gender, professional experience, attitudes, age, educational qualifications and technical skills.

Boards with diverse personal attributes and thinking styles have been shown to:

  • increase staff retention and engagement
  • promote a better understanding of an organisation’s stakeholders
  • drive innovation.

Establishing a diversity policy can help organisations to increase diversity on their boards. This is a policy that both expresses the organisation’s commitment to achieving diversity and outlines the practical measures the organisation will take to achieve it. Setting performance targets around diversity is important because what gets measured gets done.

Succession planning

Succession planning involves taking a systematic approach to projecting the future skill and experience needs of the organisation and putting plans in place to meet them. It is important that a board is prepared to respond to and meet the gaps created by the natural rotation of directors, or more unexpected events such as sudden illness or death.

In summary

Remember that a board works most effectively if:

  • directors are appointed based on merit through a transparent process, and in alignment with the purpose and strategy
  • terms of directors are limited to encourage renewal and staggered to retain corporate knowledge
  • it reflects a mix of personal attributes and thinking styles
  • it assesses and records its members’ skills and experience, and discloses these to stakeholders
  • it undertakes succession planning to address current and future skills needs in alignment with the purpose and strategy.

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