On the one hand, sound governance provides vital protection from the risks that have befouled so many companies over the years.
On the other hand, it’s an opportunity for executive directors to benefit from the experience, expertise, perspective and networks of non-execs, which can guide the business in often unexpected ways.
Finding the right non-executive directors and chairs to sit on the board is therefore highly important, as is finding the right mix of people.
Getting it right can be difficult, and even if you have an elite board, you can hardly rest on your laurels. Times change. So do people. A board that was perfect for your company nine years ago might not necessarily make the grade today.
Board audits are a vital way to ensure the composition of your board is still right. Essentially they involve evaluating the collective strengths and weaknesses of directors, mapped against what the business needs.
The aim of an effective board audit is to reach a holistic understanding of the people around the boardroom table. This involves more than just the matrix of skills, but also looking at the ‘difference matrix’, which factors in not only the diversity of your NEDs’ backgrounds, but also their personality types and how they think.
For example if your board is seven white women in their fifties, who all went to Cambridge, are all from middle class backgrounds, who all play hockey and went to the same day school, and all have a finance background, then you may be at serious risk of groupthink.
The audit could also extend to professional interests. Do you have someone interested in sustainability or macroeconomics? Does your business need someone who gets what’s happening to these in your wider sector, or who is able to take a wider view?
What do I do if there are gaps?
Sometimes a board audit will flag a deficiency in one or another area. If this happens, you could decide to replace particular board members or add directors, or just wait for non-execs to rotate off the board as their contracts expire.
The more frequent challenge is getting the balance of skills, experiences, perspectives and interests right, in a fluid, changing market where you may not fully understand your future needs.
For example, if you think developments in large language models will have an important impact on your company, you probably want at least one person on the board who can keep their peers informed, and provide particular oversight of your AI strategy.
But there are various ways to achieve this. You could engage an NED who majors in AI. Or you could choose to engage a specialist board advisor, who updates the board twice a year on AI developments, while a director with a wider range of skills takes responsibility for broader oversight.
The right option depends on various things, including the dynamics of your group as well as the company’s competing priorities and needs.
That, of course, is why the board audit matters so much. When putting senior people in place, it pays to be rigorous, systematic and strategic in your choices.
To find out more about our board audit services, get in touch here.
