Have you ever been in a board meeting and thought that at least one other person in the room shouldn’t be there?
An astonishing 46% of directors believe a fellow board member should be replaced, according to PwC’s 2017 Annual Corporate Directors Survey. And with increasing expectations of boards, that’s really counterproductive.
Everyone should pull their weight and bring the board’s performance to a higher level. But in the case of non-executive directors (NEDs), how much value you’re getting out of them is actually not just due to their skills or level of engagement.
The value of non-executive directors
Being more of an outsider, NEDs are in the best position to monitor executive activity and contribute to the development of strategy. Since they’re typically more unbiased, they can more easily challenge management, ask the difficult questions and keep everyone accountable.
But while NEDs must be able to give the right strategic insight from a 50.000 feet perspective, it’s increasingly important they understand real operational detail to do so. That means they must have access to better information, be even more committed and have the right skills and expertise.
In the words of Jim Leng, former Chairman, Corus Group, “The day of the gifted amateur has long gone.”
The influence board secretaries have
There is no doubt that how much value a non-executive director brings to the board, all starts with their own commitment and skills. But as a board secretary, it would be foolish not to devise a few strategies that puts them in the best possible environment to stimulate the impact they can have.
And that’s what this guide is for. It shows you:
- The strategies you need to get new non-executive directors up and running in no time
- How to continuously engage, challenge and evaluate board members during the years of their appointment
- The things you can do to make their lives easier when prepping for meetings
- And much more…
The different aspects covered in this guide:
- After appointing a new non-executive director
- Preparation for their first board meeting
- Rubbing shoulders with everyone
- Focus (even) more on risk assessment
- Feedback, evaluation and training time
- Access to the right information
After appointing a new non-executive director
Getting a new non-executive board member up and running, is probably one of the most impactful moments to influence his/her effectiveness for the years to come.
A study by Korn & Ferry shows that how you onboard him can make all the difference in how well he lives up to your – and your shareholders’ – expectations.
So instead of assuming he has all the tools he needs, a formal induction program can get him acquainted with your company. Even for experienced NEDs.
What should an effective induction program include?
- Presentations from management on your company’s business model, profitability and performance.
- Detailed overviews of your operations, operational challenges, and underlying infrastructure. “You can think you know how an airline runs, but when you walk through the operations center and see hundreds of people managing thousands of flights in the air at the same time around the world, you begin to understand the complexity of the business,” one new director notes.
- Meetings with key executives and functional leaders, including finance, marketing, IT, HR and any departments that are key to your operation. As Nigel Keen, the Chairman of Laird explains, “I’m a great walker-around. The more time an NED spends with the business—not just with senior management but also with the layer below that—the better they can help make decisions.”
- Full and complete explanations of any regulatory and/or governance issues that your company faces.
- Meetings with key external advisors who have key information, such as accountants, attorneys, brokers, bankers and any others who matter to your specific business practices.
Preparation for their first board meeting
After the induction program, their first board meeting will come up soon. No one enjoys walking into a meeting unprepared, so you should never put your NEDs in that situation. Remember, you’re pulling in an NED specifically because he or she is an outsider. You need to help them get a head start on their learning curve.
Here are some key things they should be given long before their first official board meeting:
First – the essentials, provide the NED with a glossary of both company and industry-specific jargon and acronyms. “Many companies overlook this, but it’s a real impediment to being productive in your first couple of meetings," noted one new board member.
Next, supply them with board minutes and papers from the previous year so they can absorb the history and context of issues they will be addressing.
Tell them what to watch by ensuring that they understand your company’s key performance indicators and lead indicators. Let them know what they are in for. Provide them with a holistic view of the board’s calendar, processes and activities.
|“When you’re new, you might wonder why the board isn’t talking about the compensation implications of a decision, as an example, but everyone else knows that’s because the next meeting is the one when the board does the comp review,” another new director explains.
Rubbing shoulders with everyone
One of the reasons why a great induction program includes spending time with key executives and functional leaders, is because it’s the easiest way to get a direct sense of the business. But if an NED is only going out into the trenches at the start of their appointment, they’d be missing out. So if your NED isn’t proactively asking for the opportunity to get involved, make it a point to insist on:
#1: Going on site to meet the employees
The management team doesn’t always know what’s going on at all parts of the organisation.
When an NED meets people across the company in their own setting, it’s easier to identify risks, see opportunity and challenge management on the things that need to improve.
“At BP, for instance, NEDs visit research and technology centres, oil rigs, and pipelines and spend time getting to know management,” explains Douglas Flint, Chairman of HSBC in the Korn/Ferry Institute NED report.
#2: Company events
Always welcome NEDs to company events to get a better feel for corporate culture and how employees interact.
These invitations should not stop after onboarding, as these casual interactions often are some of the best times to get a sense of employee morale and to discover minor concerns before they erupt into major issues.
It has the added benefit of making NEDs more approachable to staff and thus more likely to be made aware of any issues with executives.
#3: “Mystery shopping”
More adventurous NEDs might want to visit a site without revealing who they are to gain a clear sense of what a typical customer experiences.
In true mystery shopping fashion, this often can lead to surprising finds.
Finally, don’t downplay the importance of meeting with shareholders to get a sense of their expectations.
For a lot of companies this is seen as a tricky matter. But luckily, PWC’s annual corporate directors survey of 2017 showed that “in the past year, directors have come around to a much more positive view of shareholder engagement”.
Focus (even) more on risk assessment
One of the most vital responsibilities of a board is assessing risks of all types.
Often, NEDs are brought in to play a key role in risk assessment. Since they aren’t weighed down by day-to-day operations, they can spot risks other may miss.
But even though you might already spend time on assessing risk, it might not be enough:
“Boards (and non executive directors) must spend more time understanding the risks in the business and need to be clear on what risk appetite the board is prepared to sanction to the chief executive and executives,” notes Brian Count of Ceres Power Holdings.
Reminding them of their central role in risk assessment is critical as they tackle the challenges of board membership. Help them understand how the board views both industry and company risk, how these risks are assessed and articulated, and how assumptions are challenged.
It’s also important to give them the tools they need to be proactive when it comes to risk. A formal stakeholder engagement framework that looks at risks in a non-reactive manner is essential to long-term success.
Feedback, evaluation and training time
Just like any other employee, board members should receive annual performance evaluations to better understand their strengths and weaknesses.
Of course, just evaluating their performance, won’t make a difference.
Investors have been pushing to not just assess a board’s performance, but to actually implement an action plan based on the results. More than two thirds (68%) say that their board has taken some action in response to their last board assessment.
While NEDs are brought in because they have a particular skillset, they may not have all the skills they need to be successful in what your organization is calling them to do.
And as they stay on as a director for years, skills might need to be refreshed, kept up-to-date or even new skills are needed.
“Training to fulfill the NED role comes out of the annual board reviews. For these to be effective you need an atmosphere where there is straight talking. NEDs have to take the process of board review and feedback very seriously,” says Mary Francis CBE, SID, Centrica.
All too often, chairmen and board secretaries fear that suggesting training for a board member will be viewed as redundant. But there’s no reason to be scared. Especially because it’s not too hard to make a case for how it will positively impact the company.
What else can you do?
Besides yearly performance evaluation and offering training sessions, there are a few other options you can consider:
- Mentoring: The first six months to a year on any board is critical. First time directors say they benefitted greatly from having a more experienced director guide them through this critical time by providing insights into ongoing issues and personalities and debriefing between meetings.
- Continuous feedback: Why wait until the yearly moment to give your NED feedback? If you spot opportunities for improvement, just share it with them immediately. The organisation will be better for it.
- Continuous skill gaps? If you see that there is something missing in the present skillset of your board, it might also be beneficial to looking into getting someone new on board as an NED.
Access to the right information
The quality of decisions comes from the information that you have. So without access the right information, you can’t expect an NED to come up with the most valuable insights. Typically, the information provided to board members, is through board packs.
Timely and well-organized board documents are therefore essential to the quality of board discussions and thus, the success of directors according to the Korn & Ferry study. That means that you should provide the board pack well before meetings to allow time for a thorough review. A solid rule of thumb is enforcing a material deadline of 10 days before each meeting.
Don’t hesitate to probe them for what other type of information they would like access to. This feedback is absolutely paramount in compiling a quality board pack.
Does your NED have enough time?
Typically, NEDs are busy people. They serve on multiple boards and have a lot of responsibilities.
But to be effective, they need to be able to spend enough time. So be clear on the time requirement for joining your board. For example, articulate it explicitly in your letter of appointment.
The 2009 Walker Review recommended a minimum expected time commitment of thirty to thirty-six days per year for financial institutions. Most NEDs report (about 61%) report wanting more time than that to focus on strategy, so build appropriate time and remuneration into appointments.