BELIEVE-ABLE BOARDS
PUTTING THE BELIEF BACK INTO BOARDS! AT GALLUS WE WORK WITH LOTS OF ORGANISATIONS AND LEADERS ACROSS A VARIETY OF SECTORS, AT VARYING STAGES OF DEVELOPMENT. WITHOUT FAIL, EVERY ORGANISATION WE WORK WITH SEES LEADERSHIP CAPABILITY AS ITS NUMBER ONE POTENTIAL ENABLER AND ITS NUMBER ONE RISK. GROWTH PLANS AND REPUTATIONS CAN BE MADE OR BROKEN ON THE BACK OF LEADERSHIP CAPABILITY YET ALL TOO OFTEN ITS EVALUATION AND DEVELOPMENT STOPS WHEN IT GETS TO THE MOST SENIOR LEADERS OF ALL – THE BOARD! The fast changing global environment, challenging economic conditions, increasingly scarce resources and a growing level of cynicism towards corporate organisations and their leaders have created a challenging stage. A stage upon which greater (and more globally cohesive) regulation, harsher penalties and, arguably most importantly, higher expectations in terms of behaviour and performance mean that there has never been a greater spotlight upon the Board and the individuals that make it up. In his review of the role and effectiveness of Non-Executive Directors (2003), Derek Higgs describes the Board as ‘COLLECTIVELY RESPONSIBLE FOR PROMOTING THE SUCCESS OF THE COMPANY BY LEADING AND DIRECTING THE COMPANY’S AFFAIRS.’ A rather important role in any context…. According to McKinsey ‘CEOS AND INVESTORS BELIEVE THAT GOOD GOVERNANCE AT THE LEVEL OF THE BOARD OF DIRECTORS ADDS 11% TO THE VALUE OF A COMPANY’ and that ‘UK INVESTORS ARE PREPARED TO PAY AN 18.9 % PREMIUM FOR WELL-GOVERNED COMPANIES.’ An impressive opportunity to add significant value….. Higgs also advised that ‘AT LEAST HALF THE MEMBERS OF THE BOARD EXCLUDING THE CHAIRMAN SHOULD BE INDEPENDENT EXECUTIVE DIRECTORS.’ An important point to note….
Further requirements were introduced in 2010: 1. To improve RISK MANAGEMENT, the company’s business model should be explained and the Board should be responsible for determining the nature and extent of the significant risks it is willing to take. 2. Any PERFORMANCE – RELATED PAY should be aligned to the long term interests of the company and its risk policies and systems. 3. To increase ACCOUNTABILITY, all Directors of FTSE 350 companies should be put forward for re-election every year. 4. To promote PROPER DEBATE in the boardroom, there are new principles on the leadership of the Chairman, the responsibility of the Non-Executive Directors (NEDs) to provide constructive challenge, and the time commitment expected of all Directors. Given the critical governance role of the Board and its contribution to the achievement of strategic objectives, the management of enterprise risk, and the generation of a strong brand and reputation, it’s perhaps surprising how little focus (even now, a decade on from the Higgs report and post financial crisis) is placed upon assessing and developing members of the Board and measuring and managing their performance, contribution and behaviours. CEOs and Executive Directors typically have rigorous quantitative measures and criteria for selection; this is not often the case however for Non-Executive Directors (NEDs) - a population that should constitute half of any Board. Despite the pain of the global financial crisis, the ‘lessons learned’ and the generation of copious guidelines, organisations still struggle to create Boards that generate confidence in those that are expected to follow them and that are BELIEVE-ABLE in the eyes of all stakeholders.
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