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How To Improve The Composition Of The Board Of Directors

How to Improve the Composition of the Board of Directors

All over the world, the performance of board directors is being proactively evaluated by shareholders, regulators, and others. There’s a direct correlation between the composition of the board of directors and its performance. It’s a well-known fact that boards should be working on improving diversity on their boards, but that’s not the only issue at stake in improving the composition of the board of directors.

It’s prime time for boards of directors to be making deliberate decisions not only about recruiting new board directors but also making thoughtful decisions about whether they should be renewing the terms of existing board directors. The board’s overall strength encompasses the joining of individual skills and experiences, as well as their future potential as board directors.

It’s helpful to use a skills matrix to assess the skills and talents on the current board and discover the gaps of other talents that board currently needs and that will also take them into the future. Having a handy matrix of board talents and capabilities will help nominating committees to develop the best possible structure and composition for the board to fill its role responsibly. There are a multitude of approaches to getting the right composition of the board of directors. At the end of the day, boards need to take an individualized approach.

Issues to Consider in the Composition of the Board of Directors

The issues in the corporate marketplace are evolving rapidly. Much of that has to do with advancements in the technology space and all the related issues that come with it such as interconnectivity and cyber risks. Along those lines, other issues that continue to evolve are digital marketing, market disruption, and changes in consumer trends.

Because of the fast pace of changing trends, today’s boards need to be forward-looking as they seek to fill board positions and also when filling the CEO and other senior executive positions. What the company needs in oversight, strategizing, and leadership may be vastly different in the next 5-10 years that what the board needs currently related to its talent base.

Looking at the company’s future needs is something governance committees need to consider when they consider resumes of candidates to fill current board seat vacancies.

What Are the Needs for Knowledge and Expertise in Your Board’s Composition?

It’s entirely possible that you’ll need to replace some of the current board directors with others that have similar industry knowledge and expertise. In the way the industries change and evolve, it’s also possible that you need to consider associated areas of knowledge and expertise.

For example, boards may need to consider how technology is changing their approach to digital marketing and identifying target customer bases. Perhaps technology has brought new vendors into the arena that improve efficiency and save costs. Up and coming board directors may be more familiar with new business models, have access to other markets, or have strategies to gain a competitive edge. Strong candidates in the marketing space will know how to expand your customer base and enhance relationships with current clientele.

All boards can use good business people. Since many board candidates already have business experience, nominating committees should consider narrowing this category down a bit further. Do any of the board candidates have experience from another company that was in the same phase of the business cycle as your business? Were they instrumental in helping a company adjust and adapt as the company grew and prospered? Do they have intellectual rigor? Do they have ideas on how to improve the existing business plan? Do they have a combination of industry experience, experience on a wide range of complex issues or other unique qualifications that would help to advance the board’s progress?

Robust discussions can only happen in the boardroom when all board members contribute to them. Not only is it important for board directors to interject their opinions and avoid groupthink but consider the importance of seeking out board director candidates that use critical thinking skills and have good insight and judgment. In looking at the area of participation, it’s good to view someone who asks lots of questions as an asset to the board. Asking deep and probing questions and considering various alternative solutions will force board directors to dig deep in their own thinking which creates a ripe environment for new and innovative ideas.

At times, it seems like the board is continually facing opposite sides of issues and to some degree that is accurate. The board needs to look at short and long-term planning. They need to balance the shareholders’ value with strong returns on investments. The company’s growth can be organic or forced through acquisitions. Today’s boards need to be aware of company values and ESG issues and how they dovetail with commercial impact. Balanced decision-making will certainly be a staple at every board meeting.

An area of the skills matrix that most board members should check the box is communications and human capital skills. Potential board directors should be adept at understanding people and the intended culture of the company. Board directors that are skilled in communicating with and managing internal and external stakeholders are highly valued. Moreover, board members have even more value when they can connect the stakeholders and their interests with risks and opportunities. Problem solving is more complex than ever as transitions and changes loom around every corner in the areas of competition, regulation, and governance. Today’s board directors will be aware of best practices for good corporate governance and be committed to improving their governance practices.

Overall, to be top performers, boards need to secure a wider mix of talent that’s capable of bringing the greatest number of perspectives into the boardroom. Getting the best talent means looking beyond current board director referrals to board directors that offer skills in many areas including familiarity with technology.

Recruiting, evaluating incoming talent, and evaluating existing talent are all activities that nominating and governance committees continually work on as part of their roles in succession planning. There’s no better or more secure place for them to do their work than within the security of BoardEffect, a leading company in modern governance.

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