3. Review board composition

Board composition is about culture as well as structure and it’s a direct contributor to board performance. It’s not just about pulling together a group of high performing individuals, it’s also about getting the right mix of people.

There are common attributes that all directors need such as intelligence, diligence, honesty, independent thought and sound business judgment. Other attributes such as skills, knowledge, expertise, experience, communication styles and interpersonal skills can differ. They all contribute to an effective board by having a diverse range of perspectives and insights that enhance board decision-making.

Diversity is about looking at the whole board and its strategic needs, rather than individual appointments. Tenure should also be considered this way – so that the board as a whole has a balance of the new and the old. Good diversity means experience and wisdom combine with fresh ideas, appropriate to the needs of the organisation.

Key mechanisms that contribute to continuous improvement in board composition are:

• assessment of board skill and attribute needs (eg using a board skills matrix)
• succession planning, and
• formal evaluation of board performance.

Consideration of board diversity needs should be embedded in all of these processes.

When assessing board diversity, avoid a compliance or tick-box approach. It’s about building a board that considers diverse perspectives in discussion and decision-making to add greater value to the business.

It can be a lonely and difficult job for the one woman or one person from a different ethnic background to bring different views to the discussion, if everyone else around the board table is from one homogeneous group.

Tips for reviewing board composition:

• Understand the mix of attributes, including experience, skills and diversity around the table
• Assess the composition of the board and the aspects of diversity it has, or needs, including how they relate to:
  • the business and sector it operates in
  • customers, strategy and future needs
• Diversity is not about finding minority board members for cosmetic effect: avoid a compliance or tick-box approach to board diversity
• Ensure the composition of the nomination committee demonstrates a commitment to diversity

Succession planning

Board composition will not, and should not, be transformed overnight.

Succession planning is about taking a strategic approach to refreshing the board. It’s having a formal process and plan to ensure the board has the skills and attributes it needs now and for the future – to ensure quality, continuity and a balanced mix.

Look to the medium-term for succession planning
Develop medium-term succession plans that identify the balance of experience and skills the board will need to recruit for over the next two to three years. Thinking longer term allows the whole board to plan and does not concentrate on individual hires.

Tips on succession planning:

• Develop succession plans that identify the balance of experience and skills the board will need over the next two to three years that strengthens board diversity and maximises board effectiveness
• Integrate board diversity targets into succession planning

Board evaluation

Board and individual director evaluations are important to hold the board accountable and as part of continuous improvement.

Over half (55%) of boards formally evaluate their performance on a regular basis.² Regular board evaluation provides a key opportunity to ensure the board has the skills and capability it needs now and for the future – and that it has sufficient diversity.

Individual self-evaluations enable board members to assess personal performance, to see if they have the skills and attributes
the board needs for future success – and, if not, to consider stepping down. This can be difficult for both individuals and the board as a whole. Courage may be needed to combat ‘vested interests.’

Evaluation can be formal or informal, simple or comprehensive, unstructured or highly structured, verbal or written – or a mix of all of these over time.

Tips on board evaluation:

• Undertake regular and formal board evaluation, and consider including diversity questions
• Undertake regular, individual selfevaluations to ensure current board members have the skills and attributes the board needs
• Ensure there are follow-up actions regarding evaluation findings

² IoD/ASB Director Sentiment Survey 2017