We launched our Think Tank – The Board is Dead. Long Live the Board – in 2014 to challenge the fundamentals and stimulate fresh thinking around how boards operate. Over the past two years we convened over 600 Chairmen, CEOs, CFOs and governance professionals – as well as school children and teenagers with no experience of the boardroom.
In this blog, we share the responses from the first of our autumn Chairman and NED Think Tank dinner series (Chatham House Rules), in response to the provocation “If you could rip up the rule book, what would good governance look like?”
Three themes emerged from the evening’s discussion:
- Independence is unhelpfully limiting the talent pool
- Would the threat of jail sentences restore the public’s trust in boards?
- Making space for debate and thinking in board meetings is critical
1. Independence is unhelpfully limiting the talent pool
The regulator has an arbitrarily black and white definition of independence; this has the damaging consequence of decreasing the size of the NED talent pool available to a company. For example, it can be incredibly valuable for a parent company to appoint NEDs from the parent board to its subsidiary boards – it’s good for assurance and helps build the NED’s understanding of the business. A NED’s independence is about their state of mind, not existing board positions or whether they hold equity.
And on the point of director’s holding equity, the American model allows this and a suitable (not overly significant) holding gives a director ‘skin in the game’ which was thought to be a good thing: “I can’t understand why a NED shouldn’t be able to own stock – surely that aligns them to the interests of the company and shareholders?”
2. Would the threat of jail sentences restore the public’s trust in boards?
There appear to be few personal consequences to discharging board director duties poorly besides the inevitable reputational damage. A more visceral threat, tabled by a Chairman, was a term in jail. The suggestion was a response to society’s view that the law does not provide suitable punishment for directors’ wrongdoing or poor stewardship. Corporate justice needs sharper teeth.
Jail terms may have public appeal, but it makes the role of the NED ever more unattractive. There is already a concern that the risks taken on by NEDs are not compensated well enough – our straw poll showed that in financial services, NEDs typically spend twice as much time on their board duties compared to ten years ago. Couple this with the increasing burden of regulation, it’s not an attractive prospect. But this doesn’t mean there aren’t others willing to take on a NED role.
What might that mean as the pay vs talent dynamic plays out? A couple of possible outcomes: poorer quality boards or two kinds of board: one tasked with ticking off the statutory governance and legal duties, and the other, an advisory board, free to do the strategic blue-sky thinking unshackled from the matters of compliance.
3. Making space for debate and thinking in board meetings is critical
There were three ways suggested to help with this:
Always have at least two subject matter experts on your board. You might have struggled to find a single cyber risk expert for your board but a quality debate is only possible if there are at least two well-informed directors sitting around the table who can challenge each other’s thinking.
Boards should use technology to de-clutter the board agenda and free up more time for thinking and debate. Could artificial intelligence help to draw attention to pages in the board pack that require closer attention e.g. areas of under-performance, potential risk or opportunity? This would allow greater time to focus on the things that really matter and to devote time in the board meeting accordingly.
Boards should do employee speed dating. Not just a gimmick, our dinner guests agreed this is an excellent way to connect with employees from all levels in an organisation. One director had already tried it and found it an invaluable source of ideas to inject into the board discussion and a good opportunity to get to know staff at all levels of the organisation – particularly those below the ‘bulge’ of middle management.
If you would like to challenge the board status quo, and stimulate fresh thinking around good governance, visit our Think Tank page and request an invitation to our next event.