IT IS hugely surprising to me that within our complex and regulated economy, almost anyone over the age of 16 can become the director of an organisation with no preparation or training whatsoever.
This freedom may be the hallmark of a free economy but it shouldn’t mean a directorship can be entered into without a full and clear understanding of the responsibilities that the role demands of the post-holder.
The reasons why more directors aren’t trained before they set foot in a boardroom are probably many and varied, from lack of awareness that training is available, to not fully appreciating the complexity of their new role and the legal and regulatory requirements inherent within it. There may be an element of ego attached as well – having reached the exalted heights of sitting in the black chair, who needs training?
But no one should be under any illusion about the challenges executive directors now face having to juggle operational responsibilities with the need for ensuring proper corporate governance across their organisations. The latter requires (among other things) a general overview of its operational activities, an understanding of the exposure to risk, and the identification of the strategic direction of a company.
It is not an easy task, particularly with the ever-growing diversity of large organisations, which makes full and proper oversight extremely difficult.
It was the failure of governance procedures in a number of multi-national financial institutions that lead to the banking crisis, as highlighted in the Walker Report and which in turn led to revisions to the UK Corporate Governance Code in 2010, and again in 2012.
However, legislation, regulation and codes of best practice can only go so far in shaping behaviour inside the boardroom. Of greater importance is the presence on boards of able and motivated directors with a detailed understanding of their distinctive role.
One way to take the guesswork (and any concerns about egos) out of how your board might operate better and/or might benefit from particular skills or experience is through a board evaluation. This can not only identify what the board is doing well and target areas for improvement, but also serve to identify gaps in the board’s knowledge when looking to expand, train, or refresh the board.
Many new directors, however, are given precious little opportunity to learn about their roles before joining a board. For some, this can lead to a lack of confidence in speaking up about concerns for fear of ‘saying the wrong thing’ – something that can be tackled with an effective board induction.
All board members must also apply critical and independent thought to the challenges they face, avoiding where possible the perils and limitations inherent in ‘group think’, that may mean decisions are insufficiently thought through. One way to avoid this is through diversity, for example in terms of members’ gender, ages or backgrounds.
Most organisations, however, still follow traditional paths of recruiting onto their board via the ranks of management, and this can lead to a very homogenous group. The appointment of a non-executive director from an entirely different background, which can neatly address this issue, is often dismissed as ‘too left field’ because of the perceived requirement for executive experience. But any shortfall in a candidate’s experience can, at least in part, be plugged through proper training.
The value of high quality professional development for directors, we believe, should be considered an essential component in equipping first-time directors, and indeed be a requirement for established directors, ensuring they are up to date on the political, social and the ever changing business landscape.
Dr Roger Barker, Director of Corporate Governance and Professional Standards, Institute of Directors
To find out more about board effectiveness/evaluations, and about developing director performance, log-on to www.iod.com/developing