How to be better non-executive directors

  • Business
  • Tuesday, 07 Aug 2012

Familiarisation: Inductions should involve site visits and training on the specific legal responsibilities and ethics codes

IN my last article I talked about the traits that make an exceptional independent non executive director (NED). Today, I'll highlight some of the traits that executives and board members thought made a NED ineffective from a survey conducted as part of our recent Korn/Ferry research.

Identifying negative attributes often provides a useful way of highlighting positive ones. Among the behaviours that can harm, or even derail, a NED are:

Big egos.

Boards have no need for NEDs who join to further a personal agenda, enhance their political currency or who are motivated by status. That includes pushing political correctness on issues such as the environment, diversity and corporate social responsibility. All NEDs should remember they are there to represent shareholder interests.

Confrontational personalities.

Individuals who are challenging for the sake of it or who believe this is what is expected of them make poor NEDs. Dogmatic, inflexible opinions have no place in the boardroom and those who must win every argument will find the boardroom an unsatisfying place to be.

Lack of preparedness.

NEDs who do not fully commit to the role which includes reading all materials in advance of the meetings and attending all meetings will make little positive impact.

Board members also express irritation with those who display a lack of enthusiasm for the goings-on, such as by constantly checking messages or e-mails during meetings.

Shallow comprehension.

NEDs who do not make the effort to fully understand the business often indicated by a lack of participation or asking the wrong questions during meetings will be ineffective. Peers quickly divine who is not clear on the big picture.

Disrespect for boundaries.

Failing to understand the distinctions between the role of the NEDs and that of the executive team will cause conflict. Drifting into the realms of operational decision making, especially during crisis situations, will damage relationships with the CEO and others in senior management.

Continuous improvement

However deep their skill set, exceptional NEDs are always seeking insight and support to be even better. So what can the individual do?

This has little to do with status. NEDs should select businesses that genuinely excite them and where they believe they can offer real value as a board member. Having target areas of contribution though not a personal agenda can also make the experience more rewarding.

Prior to joining a new board, NEDs must take “due diligence” seriously. This includes researching not only the company, but also individuals on the management team and the board itself. Brushing up on the industry sector, attending conferences, reading analyst comments and networking with other board members can facilitate this process. Extensive reading to ensure financial and political literacy is essential for keeping abreast of corporate priorities.

There is a critical need to carry on developing knowledge of the business and building relationships with key individuals throughout one's tenure. Time should be spent on site visits to factories, shops, offices, banks and other places of work.

NEDs should talk to all layers of management, get under the skin of the company and take part in as many induction meetings or outside courses as they can.

What boards can do

It is dangerous to assume that by the time people are recruited to boards they are so experienced that training will be redundant. Methodical induction and proper training programmes, particularly for new NEDs, will improve the performance of individuals and the board as a whole.

Inductions should involve site visits and training on the specific legal responsibilities and ethics codes. They should also cover shareholder expectations and the company's governance priorities. More technical aspects like financial details of audit and remuneration committees require formal training by specialists.

One-on-one mentoring can be a particularly valuable training method for new NEDs, allowing them to build relationships while at the same time learning from more experienced members of the board.

Boards can also enhance NED performance by providing the necessary administrative support. The quality and timeliness of board documents a function of executive and secretarial support can greatly affect the quality of board discussions and therefore the success of directors.

External board reviews can also be a valuable tool in enhancing effectiveness. Members will find personal feedback received from peers, gathered through an independently facilitated review, helpful in supporting their own personal improvement.

The quality of the chairman is also critical to boardroom effectiveness. The growing complexity of the boardroom agenda, coupled with the changing mix of skills needed on the board requires chairmen to create a culture and dynamic that extracts maximum value from each board member. This requires a sophistication of team leadership and facilitation of a higher order than before. Much care and attention should go into the selection of a chairman, as this individual will shape the experience and effectiveness of the board and set the tone with management. The use of humor should never be underestimated to create the right cohesive yet productive atmosphere when conducting meetings to arrive at meaningful decisions.

Recruitment process

The prevalence of the “old-boys network” in board recruiting remains strong although a move to greater professionalism is underway. Malaysia is no exception, as the use of professional search firms is becoming increasingly important to detach from the “who” you know vs “what” you know that's so important.

Leading boards understand that strategic governance requires taking as a whole the perspective of a board, identifying gaps in the aggregate set of skills needed to provide the appropriate level of challenge and support to management and then embarking on a targeted process to recruit those missing skills. This process undoubtedly helps build a more balanced team aligned to the company's long-term strategic goals.

This trend towards a more professional recruitment process has expanded in recent years with the use of consultants and rigorous assessment methods. Recruiting to meet the new demands of the NED role is essential and will be hard to do through personal contacts alone. It is critical to identify the issues facing the board in the coming years and the skills needed to master them and then properly briefing the search firm. Having a coherent definition of requirements smoothes the process and prevents ambiguity. The time and effort boards put into the candidate search and selection process will pay dividends for years in the boardroom.

The problem is that as boards become more targeted and specific in identifying their talent needs, so the identification of suitable candidates becomes harder. The ideal NED today is the corporate equivalent of superman: they possess wisdom but remain plugged into current developments; they need a breadth of experience alongside a depth of knowledge; they need a variety of complicated and niche skill sets but also sophisticated communication skills. They also need to have the time and passion for business to commit to the increasing range of responsibilities. It's akin to being not just a jaguh kampong, but one with global outlook and international flair, more so for NEDs within large global multi-national corporations.

This broadening of overall business and awareness, combined with the increasing focus on specialised skills raises a new recruitment challenge: the talent pool will shrink if boards hire only candidates who can tick this growing number of boxes.

Broadening the search, marrying different skill sets and encouraging a diversity of knowledge/background are therefore essential if boards are to truly meet the talent challenges that lie ahead. The real issue is that boards are too similar. There is not enough divergence in the experiences and backgrounds of directors.

The stagnation of average board member age largely comes down to necessary experience, capacity and avoiding conflicts of interest. Current executives often do not have the time to invest in a NED role, especially given the increased commitment required.

Herein lies a dilemma. On the one hand, the increasing complexity and specialisation of boards recommends the inclusion of younger directors at the “sharp end” of their careers. On the other, this talent pool either lacks the necessary experience or time to fully engage. This could lead to the emergence of career NEDs: executives in their late forties and early fifties who step off the executive treadmill to build up a portfolio of NED roles. The increased accountability and responsibility associated with being a NED might make this a meatier and more attractive career option. However, this will also increase the risk that such executives will quickly lose the currency that made them attractive to boards in the first place.

The additional skills and time commitment demanded of the role also raises the question of correct job title. Many NEDs have questioned the title “non-executive director,” arguing that to be described as a “non” something is inappropriate.

Today more than ever, the case to change the term is becoming stronger. With NEDs now expected to possess expertise around an array of complex topics, and as boards become more accountable, “independent director” would perhaps better reflect the greater responsibility and professionalism of the role. All said being an independent director should not be seen as a precursor to a “retirement holiday” but rather a platform to share one's wisdom and wealth of experience towards a common goal for said company.

● Reza Ghazali, managing director of Korn/Ferry International in Malaysia believes things may still come to those who wait (it's called patience) but not those who wait too late so live life or let live!

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