What skills and roles does your board of directors need? Does it currently provide the right mix of perspectives?
What are the behaviours your directors need to display if they want to make the best decisions for your organisation?
Here we continue our look at the Grant Thornton report, The Board – Creating and Protecting Value. The report looks at the perspectives needed in the boardroom, using DLMA analysis.
DLMA analysis is a technique developed to evaluate how well organisations perform regarding the balance of skills and behaviours between the executive and the board.
It looks at how well energies are balanced between risk (value protection) and opportunity (value creation. This balance is something we have touched on before, in our blog, Do your non-executive directors focus on risk, not success?
You can read more about DLMA analysis and the science behind it here.
The four quadrants that make up a successful board
The analysis categorises skills and behaviours needed by directors into four areas:
- Directorship – do members have a ‘future focus’?
- Assurance – are risks appropriately monitored and the executive overseen effectively?
- Leadership – are decisions made that advance organisation’s purpose? Does the board inspire employees to realise this purpose?
- Management – does the executive set goals; assign roles and responsibilities effectively; ensure the measures are in place to achieve strategic aims
Getting the right mix
The idea is that by looking at these four quadrants, the board can ensure that they have a balance of the abilities needed to tackle their wide-ranging responsibilities.
It can also help to identify whether members are currently using its time and energy in the right places. The report says that – for a board to be effective – both executive and non-executive directors need to create value (seize opportunities) and protect value (manage risk).
What does this tell us about boards today?
Today’s boards have a strong ‘future focus’, according to the analysis. While this is positive, it says that there is potential for them ‘to be more effective at governance, to focus on what is hiding in the now’.
This is something we have looked at previously, in blogs asking Should your board be more proactive on governance and Are boards failing when it comes to compliance. The Financial Reporting Council also issued a report at the start of the year suggesting that boards need better governance.
Boards as leaders
88% of respondents see their executives as strong leaders of the board and of the organisation. 93% believe that the executive directors, or senior executive team, model the organisation’s values.
The report notes that while this has long been crucial for organisations like charities and non-profit organisations, it is becoming equally important for commercial businesses, which are also subject to an increased focus on culture and values. This growing link between compliance and brand strategy is also something we have looked at before.
The challenging role of the non-exec
The report notes that it can be more challenging to measure the effectiveness of non-executive directors, as their roles and responsibilities are often less well defined.
73% of respondents feel that their non-executive directors play a role in designing, debating and deciding the organisation’s future. Of those that disagreed, many felt that this wasn’t part of the non-exec members’ remit.
Achieving the right balance
The report concludes by saying that ‘the energies of the board should be balanced and non-executives should have an assurance and control role’.
It also recognises that, because of the regulatory pressures on firms, this ‘control’ responsibility is one where directors can be expected to dedicate a significant amount of time and energy.
If you can get the right mix of views, skills and experience in your boardroom, you are well-placed to avoid groupthink, herding and other social conventions that obstruct good decisions. You can read more on this in our blog on How to stop social processes undermining your board decisions.
Give your directors the tools they need for optimum effectiveness
If you want to read more on how to maximise the efficiency of your board, you can read our blogs on How to make your board more efficient and How to make sure your board members are all reading from the same page.
Increasingly, boards are turning to technology to support them and ensure they are capable of making the best decisions. To read more about this, you can download our whitepaper, Board portals – what’s in it for directors? The whitepaper is free and you can get your copy here.
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