2016 reasonswhy boards 883x432 1

The five things that will make your board a success

2 August 2016

The article at a glance

Want to know how to get the best out of your company’s board? Here’s what the experts say. Behind every successful organisation …

Category: Insight

Want to know how to get the best out of your company’s board? Here’s what the experts say.

How do you create an effective board?

Behind every successful organisation stands an effective board. But what are the factors that make a board work? We asked three experts for their insights.

  1. Diversity, but not as you know it
    Think ‘diversity’ and you inevitably think ethnicity or gender. Yet diversity of experience or, as Shelly Lazarus, chairman emeritus and former CEO of Ogilvy & Mather, calls it, ‘cognitive diversity’, may well be just as important. “Diversity, yes, but not in any prescribed way,” she says. “You need people who have different life experiences. It doesn’t matter where the diversity lies as long as the board is diverse in the way it thinks about things. It’s not as simple as just saying we need someone from Asia, someone from Europe, or two women. In a world that is changing so rapidly, you want to have people who have had life experience in different aspects of that changing world. One of the things that everyone is looking for now is people who are comfortable with new technology. These are people who have grown up in a world where everything is digital and their approach to business is to think about disrupting the current way of doing things.”
  2. Experience = human and social capital
    A board’s human and social capital – expertise, knowledge, and connections- can have a positive synergistic effect on IPO performance, says Professor Yasemin Kor, Beckwith Professor of Management Studies at CJBS. Her research, published in the Strategic Management Journal, examined 360 biotech firms that went public between 1995 and 2010. It found that having members with public company board experience was a big factor in a board’s positive effect. “Experience is a bundle of both human and social capital,” she says. “It brings expertise, yes, but it also means that you have met many very influential people who are also experts. The directors that have served on these kinds of public company boards have the knowledge of how firms operate in this public domain. They know the corporate governance challenges. They also have a large network: they have access to other boards, connections, and CEOs, and they bring that to the boardroom. On top of this, you get a synergistic effect when your CEO has also prior board experience (outside the firm). Only then your CEO can think with a governance hat on as opposed to wearing a management hat only. Due to this experience, CEO can collaborate better with the board. She not only anticipates the questions from her board; she welcomes them.”
  3. Know your role
    It’s a very basic question, says Mark Linder, partner at communications agency Bell Pottinger and trustee of Common Purpose where he is involved in leadership development training, but it’s vital: what is the role of the board? “Sometimes it’s a statutory role and it’s quite clear: the CEO will say that we are going to have to take certain actions to basically improve the books, and the board must ensure that what is being done is legal,” he points out. “But when a CEO comes with something strategic – for example, she wants to expand geographically – then you can feel the question in the board meeting. Are we here to cheerlead? To risk-manage the vision? To say: have you thought about this and this? To have a value judgment? Sometimes the CEO cannot always express what he or she really needs to the board at that moment. And so the board has to have enough wits to read the management theme and to calibrate what’s going to be helpful for them in making the decision, and to know when to be a cheerleader and when to be a critical friend.”
  4. The importance of asking naïve questions
    Of course, your board needs industry-specific experience. But having other sectors represented can be hugely beneficial: these are the people who will ask the questions that everyone else assumes they know the answers to. “Naïve questions could turn out to be very fundamental questions,” Kor points out. “You need a little bit more diversity of questions, debate, and an infusion of different ideas, practices, and solutions from other industries. However, of course, you need a balance of depth of expertise and understanding, so that the directors are not just asking general questions but they are actually able to contest management’s view if necessary.”
  5. Meetings bloody meetings
    The majority of board meetings aren’t great social occasions, says Linder: everyone turns up for the meeting, then dashes off to fulfil all their other commitments. He believes that boards should build in in-depth time to get to know each other. “I’m a big fan of an annual or bi-annual off-site for a day, with real work but also a bit of kickback,” he says. “A board needs to have emotional capacity. One way of developing that, as well, is for the CEO to give board members their own work to do between meetings so that they have their own output and are coming to the table with something useful for everyone. And that keeps you in touch with other board members and staff. You develop a relationship. If you don’t have that, you may end up with board member who is just sort of there and not necessarily sure of the role.”