An interesting article this week explores ‘board malfunctions’ and the problems that arise from dysfunctional boardrooms.
We take a look at the things that can go wrong for boards – and the steps you can take to keep things under control.
How do boards malfunction? Examining common problems
The article on the Ethical Boardroom website this week identified challenges that can face even the best-intentioned boards.
Written by Jean Pousson, a senior consultant with the Institute of Directors, it cites recent problems at big firms – BHS, Carillion and Patisserie Valerie, to name a few – as evidence that everything doesn’t always work smoothly in the UK’s boardrooms.
While every circumstance is different, some issues, the author believes, crop up time and again. What are the things boards get wrong?
Some boards, the article says, are ‘simply too big’ – something that isn’t necessary, as many very large organisations operate successfully with a board of only seven or eight directors.
And board size should not be based on the size of the organisation, but on the complexity of the business and the skills needed to run it. Put too many people in a room and discussions will digress, with decisions hurried, or worse still, not made at all.
- Meeting set-up
When and where do you hold your meetings? Why in this place and at this time? Is it a conscious decision, based on evidence that it’s the best place, day and time to meet, or is it force of habit?
Are your directors briefed effectively for meetings? Do you make sure your directors get their papers in good time, to enable them to plan effectively for meetings? If your board could do this better, you can read our tips on ensuring your members get the information they need.
- Decision making
The article author says that ‘Incredible as it may sound, I have observed board meetings where decisions are not made even after lengthy discussions!’ It’s vital to focus meetings so that key decisions are made. Sometimes, social conventions can undermine good decision-making – find out how to avoid this.
- Mix and composition
Diversity on the board is essential, and should cover background and experience as well as gender, ethnicity and age. Read more about achieving the ideal mix of perspectives in your boardroom and find out what is being done to improve the gender balance on boards.
This is an interesting one. Because your board members may come together infrequently, it’s important to help a strong ‘team spirit’ build within the group. This may mean organising a dinner the night before each board meeting, so that the ‘ice has been broken’ before directors and non-execs come together for the meeting.
- Personal agendas
Another interesting point. The – sometimes conflicting – personal agendas of the various board members can run counter to the need for company-focused decision making. A strong chair can be vital here in ensuring that decisions are made for the right reasons and stop youfalling prey to the personal traps that can hinder good decision-makingand prevent you maximising board effectiveness.
Many new directors still report not being given sufficient training or an induction before they join. They are learning ‘on the job’; something that will delay their ability to be a full participant in informed board decisions. Read more on best practice when appointing new board members.
- Training/continuing professional development (CPD)
Directors need to keep up training, both on the technical aspects of their role (eg, understanding the organisation’s area of business and new developments) and on the requirements of their role as a director.
Linked to this, a move towards increasing personal and corporate accountability makes it more important than ever that directors understand their role and their responsibilities around regulatory compliance and good governance.
- The CEO
Occasionally, the article says, the CEO can take on a near-celebrity status that both inhibits their ability to make considered decisions, and prevents the rest of the board from challenging them. Reminding themselves of how they should be spending their timein order to drive the best corporate decisions can help to bring a wayward CEO back on track.
- The chair
The way a meeting is chaired has a huge impact on its effectiveness. The chair needs to deal with the diverse viewpoints and personal agendas we’ve mentioned, and be able to herd very senior people into making the right decisions for the organisation. The role of the chair is explored more in our blog asking how much debate you really want on your board.
- Non-executive directors (NEDs)
Legally, the article points out, NEDs have the same statutory responsibilities as their fellow board members. Too often, though, this is not fully recognised and their experience and skills not fully utilised.
Your non-execs might bring knowledge on a specific issue, like compliance. If you can ensure your NEDs focus on success strategies as well as risk mitigation, they can play an invaluable role.
- Humility and delegation
Board members cannot be experts on all things. Yet over-confidence – hubris – can be a problem (the BBC cites it as one of the Deadly Sins of Business). Directors need to recognise where they need outside help, and delegate to outside experts where appropriate.
While the board is responsible for setting strategy, the author believes that ‘all too often, it simply does not have the nous to take the organisation forward’.
Too often, discussions focus on the tactical rather than the strategic. Decisions are not made for the right reasons, and current successes can mask poor decisions that will impact the organisation’s future. The chair is crucial again here in guiding debate and ensuring the correct focus.
Risk management can become formulaic. Yet the nature of risk is always evolving – cyber risk, for instance, is growing and has numerous potential manifestations. Boards need to look to the future, identifying and developing strategies to tackle future risks, not just those they face today.
The article cites a growing – and positive – trend for boards to ‘take a few minutes to reflect at the end of the meeting to consider how it went: what worked well and, perhaps, what worked less well’.
This can be invaluable in improving behaviour, agendas and performance, and in making sure that your members are getting the information they need to prepare for meetings.
Boards are comprised of human beings – each with their own agendas, backgrounds and views. While successful directors tend to share some common attributes, it can be a challenge to get them thinking and working together for the good of the organisation.
Even the best boards can go off-course, as the challenges pointed out in the article show. The key is in steering them back on track.
Nothing in this document should be treated as an authoritative statement of the law. Action shouldnot 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.