Elections - getting the right people on board

Election outcomes dominate the media, but not so for the thousands of companies and not-for-profit organisations that have elections each year to form their governing boards and committees.

While elections provide a democratic process and can engage, and provide accountability back to, shareholders and members, they can pose a number of challenges for boards.

The same problems that can dominate general and local body elections – lack of diversity, poor or limited rotation/turnover, popularity or profile superseding skills mix/expertise, an inability to plan succession, uncontested elections and the influence of interest groups – can also beset boards.

As society and organisations face increasing uncertainty and complexity, the breadth of issues directors are having to consider is expanding to new territory with volatile global economic and political conditions, climate change impacts, shifting customer preferences and exponential technological change. In the 2023 Director Sentiment Survey 64.2% of directors said their boards discussed board composition, skills and experience and identified CEO/board succession as one of their key focus areas for 2024.

Succession planning is one of our Top 5 issues for Directors in 2024, in light of the crucial role it plays in supporting boards to address the increasing number of pressures. Succession planning is important to ensure a seamless transition to new leadership alongside continuity in strategy implementation. However, board succession can be a difficult topic around the table.

The ideal is to undertake a robust recruitment process to find a candidate with the attributes, experience and skills needed that align with the board’s long-term strategic direction. Unfortunately, elections do not always provide for ideal scenarios, especially if the board or nominations committee don’t have a role in nominating candidates.

Board composition is influenced by a number of factors including the need to address increasing complexity, challenges and opportunities, as well as the need for diverse perspectives and differing skills to ensure optimal performance. Voter bias can have a significant impact on board composition. Directors that bring new skills (that may not have been considered necessary in the past) and increased diversity are beneficial not only for the bottom line, but diverse boards are less prone to groupthink, and are more likely to embrace challenges and opportunities.

A number of boards have adopted quotas to try and counter voter bias but, while there are benefits, concerns about quotas remain, including that they can be seen as a ceiling rather than as a floor.

Boards and voters need to think more strategically about board composition to ensure optimal long-term performance. To support this, the board has an important role to play in voter education about the needs of the board, the current or future skills gaps, and the far-reaching benefits of diversity.

There has been a lot of discussion recently about length of the parliamentary term, with a push to a four-year term considered to support stronger governance and longer-term thinking. Short tenures can encourage a short-term focus to match the election cycle. The same concerns apply to boards, with some election terms being only one-year, tenure limits of one-year for the chairperson, or no tenure limits whatsoever. Director rotation  allows a regular injection of new leadership with new skills onto a board, and can reduce issues associated with entrenchment. Similarly, and where possible, staggering of term dates can help reduce the potential loss of institutional knowledge and destabilisation of the board if too many directors leave at once.

For incorporated societies, board composition can be discussed as part of a constitution review to meet the requirements of the Incorporated Societies Act 2022. A review presents an opportunity for organisations to consider both their governance structure, such as the use of nomination committees, having an independent chairperson or a mix of appointed and elected members, as well as consideration of the term of officers and tenure length.

Considerations for boards:

• Put succession planning on the board agenda including strategies to build a talent pipeline.
• Review your governance structure to ensure that it is the right one to meet the long-term needs of the organisation, including consideration of a limit on tenure length and the optimal mix of director tenure levels on the board.
• Board evaluations can be used to assist in the development of more diverse boards and in the identification of skills gaps. Some boards share their evaluation results and adopt a diversity policy.
• Ensure the nomination, appointment and voting processes are clearly communicated to voters.
• Develop strategies to encourage more diverse candidates to stand and increase voter turnout.
• Provide detailed information and biographies on proposed candidates for elections outlining experience, background, skills, attributes and how they will contribute to the long-term success of the organisation.

Nomination committee considerations:

• Demonstrate a rigorous and considered approach to board composition and the selection of candidates including strategies for widening the pool, diversity, future-proofing and skills gap identification.
• Set a good example through consideration of, and commitment to, diversity.
• Ensure shareholders are well informed about what contributions directors make to the team and the long-term strategic outcomes of the organisation.