Do your non-executive directors focus on risk, not success?


That’s the question asked by a new report published by think tank, Tomorrow’s Company.

The sub-heading of the report, NEDs: Monitors to Partners is: ‘The need to shift the focus of non-executive directors from risk mitigation to promoting long-term success’.

It looks at the governance changes boards need to make in order to create long-term, sustainable businesses.

Are boards too risk-averse?

Firms have faced an increasing regulatory burden over the last 25 years.

The report’s authors argue that this has led to boards that are overly-focused on risk mitigation and monitoring, at the expense of forward-looking strategic planning.

As a result, boards as a whole and NEDs in particular, focus ‘too often on how to comply with an overly prescriptive list, rather than choose the structure and processes that help create long-term value’.

The report focuses on three areas:

  • The need for change
  • A focus on form over substance
  • Actions and questions to consider

Here we summarise all three to give you a flavour of the report – and look at how you can address the issues it raises.

1.  Need for change

The report identifies two key reasons why change is needed:

The current approach is not improving outcomes. There is no evidence that the new, tweaked or refocused regulations that we have seen recently have done anything to improve outcomes.

In other words, you could put a tick in the box for all your regulatory requirements, but it might not actually deliver better results for your firm.

The current focus is on risk mitigation rather than opportunity. The ever-increasing regulatory burden means that instead of acting as strategic partners to the business, board members are simply risk monitors and managers.

2.  A focus on form over substance 

Instead of having the flexibility to meet governance requirements as they see fit, boards are tied up with growing amounts of red tape.

This translates to:

  • Boards not having enough time. The growing regulatory burden means that they don’t have the time to discuss issues vital to business growth
  • Expectations of directors have risen – in tandem with the time and resources available to them decreasing. Directors are expected to do more with less
  • Members are monitors, not strategic partners – regulatory reform sees them increasingly expected to perform a monitoring role, rather than helping the business with strategic decision making
Too much time spent looking at backward-looking data on financials or risk. This reduces the time the board has to spend making decisions on issues like disruptive technology, innovation, culture or strategy

3.  Actions and questions to consider

The report identifies a number of questions and actions boards should prioritise:

Create clear definitions of purposes and success

What is the aim of your board; who does it serve? What are the organisation’s purpose, values and appetite for risk? Who are the key stakeholders, and what is the relationship with them?

Make sure every NED has a clear role and value

Does each NED (or member) know what their role is? Does everyone have clear objectives that all members are familiar with? Giving people clear remits that play to their skills and experience will help you get the most from your board.

Make the most of techniques like situational intelligence to help your board make the best decisions, and avoid the social processes that can undermine good decision making.

  • Get the balance right: monitor vs partner

Directors tend to have two distinct roles. They monitor governance, and advise on matters of strategic importance to the business.

Decide how this works best for your firm. Should each director have some responsibility for both? Or should individuals be given specific remits?

The expectations of boards (and the company secretaries who manage them) are changing. Make sure you get the right balance.

  • Allocate directors' time effectively 

How much time do your members have to spend on board duties? Is it enough? Is the time split between risk mitigation vs forward-looking decisions as it should be? You can help by reading our tips on making your board more efficient and briefing members effectively for meetings.

  • Produce board packs that meet members' needs 

What information do board members need to be effective? What level of detail is required, and how is this information best delivered?

Identify how your board members prefer to receive information and then set about delivering packs that meet their needs.  This might be online, offline, in hard or soft copy.

  • Build a diverse board

A more diverse set of directors may help with the challenges you face. Cultures where challenges to current practices are encouraged can help to make better decisions.

  • Align your board and business

This is an essential step.   Make sure your directors are in step with your firm’s priorities. An understanding of strategic goals helps your directors to focus their time on the most important areas.

The full report is available online. For board members, it is a valuable insight into the ways you can move from a prescriptive approach to risk and compliance towards a forward-looking, business-focused ethos.

One theme that comes across time and again is the need for directors to make the most of the limited time they have. With regulatory and other obligations squeezing their time and resource, you need to make sure your meetings are efficient and your board papers user-friendly.

Many boards have found that using a portal to deliver board packs has increased efficiency, reduced administration and made the process of producing, delivering and reading papers easier.

To read more, you can download our free whitepaper, Board portals – what’s in it for directors? You can read a copy here.

Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.

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