Author: Lorraine

Posted on

Committee effectiveness

Committee effectiveness

Board committees are an important aspect of governance at the top of an organisation. If the board is to be able to focus on strategic issues there are other key matters which need to be properly addressed with adequate time spent on them, without detracting from the main board agenda. So committees that function well can add much value – and the contrary is also true – dysfunctional committees can create real problems.

Which committees do you need?

For most plcs – and many other organisations, there are three key board committees – audit, remuneration and nomination.  

The audit committee will usually cover risk, although for many regulated organisations such as banks, there will often be a separate board risk committee.

You may see other committees – an ESG or equivalent committee is becoming more common as there is so much to consider and this allows the board to maintain some oversight. Some boards choose to have a governance committee (which may be combined with the nomination committee). As a governance professional I absolutely endorse having good governance practices but boards should be careful not to overdo it. Regular governance reviews and board effectiveness reviews should mean that a full on governance committee isn’t really necessary – see further comments below.

Who should be on them?

Each committee will require members with a certain level of expertise. A skills analysis (see my article) should identify where this expertise lies within the board as well as any gaps where some board briefings would be useful. This can help to ensure that all committee members have sufficient knowledge to make informed decisions themselves rather than being overly reliant on advisers.

Best practice is for the audit and remuneration committees to be comprised of independent NEDs only. The CEO may be a member of the nomination committee. However, the CFO would be expected to attend audit committee meetings and the Head of HR would typically attend remuneration committee meetings. Careful advance agenda planning is essential to get this to work smoothly, particularly for the remuneration committee, where you may need some commentary from the CFO on targets and input from the CEO for other executives but neither should be present when their own remuneration is discussed. Regular communication between the committee secretary and the committee chair in the run up to the meeting can aid this process.

Meetings

As for any meeting, a clear agenda, sufficient time for questions and debate on items before the committee are required to make your committee meetings run well. Committee chairs may have been appointed for their particular background knowledge but that will not necessarily make them a skilled chairperson. Board effectiveness reviews should draw this out, however it is obviously better if any emerging issues are tackled as soon as they become apparent. Some coaching from the board chair, SID, or an outside adviser can be beneficial, particularly for someone who has not had to fulfil such a role previously.

Delegation and reporting back

Clear delegation is key, so that the committee members understand their remit. Terms of reference should be in place and regularly reviewed. The committee secretary can assist the committee chair in making sure all areas which are within the terms of reference are covered at appropriate times. Good practice is for minutes of committee meetings to go to the next following board meeting for noting (subject to any issues of confidentiality or potential conflicts of interest). The committee chairs may be asked to give a brief report at the board meeting but this should focus on a few main issues and not be a repeat of the debate at the meeting.

When is a committee not a committee?

It is important to have a clear and purposeful governance framework in place, to allow the organisation to get the most out of the expertise of the directors in the time available. Some committees will be better kept within the executive – for example an ESG committee might be best handled in that way. There may be other projects where a temporary “working group” is the best option – for example if there is the need to review the governance framework and documents from time to time. The group should have a specific set of tasks and outputs to be delivered within an agreed timeframe. It can then be disbanded leaving time and energy for whatever is the next challenge.

Conclusion

Well run committees can contribute much to board effectiveness. There should be some consideration of how effective they are during your board review. Agreed actions for improvement can be included on the overall action plan from the review.

Further reading

The Chartered Governance Institute (UK & Ireland) has for many years provided model terms of reference for committees which can be found on the resources section of their website. You have to be a member or a (free) subscriber to access these. As well as templates for audit, remuneration and nomination committee terms of reference you will find them for risk and ESG/sustainability committees.  

Posted on

Diversity and all that…

Diversity and all that

As some large US corporates are ditching their DEI initiatives to stay on the right side of the new administration you may be wondering what on earth is going on and where it will all end. Most of us won’t be in a position to influence those kinds of decisions but we can still strive for good practice for our own boards and choose not to follow that particular trend.

Following on from my previous posts, once you are clear on the direction of travel to achieve your desired strategic outcomes, it is time for the nominations committee to review the board composition.  People issues can always be sensitive but following an objective process gives you a sound foundation on which to base decisions about the future membership of the board. The combination of a skills analysis together with a review of the tenure of NEDs should be sufficient to start the conversation about board succession.

Skills analysis

There will be a core list of skills, knowledge and experience which most boards want. Then there may be other more specialist attributes which tie in to your particular strategic aims. Conducting a skills analysis of your current board members (or refreshing a previous one) has to be the starting point when considering future board composition. I find the best way to do this is to get each director to rank themselves against the list of the top 10 to 12 skills which your board needs and to provide some evidence of what they have done in a particular area to merit that ranking. Most board directors are sufficiently self aware and mature to do this well. The Chair and governance lead can then moderate the results and make tweaks if necessary. I have had more occasions when an increase in the rating was justified than times when someone had perhaps exaggerated their abilities.

The nominations committee can review the output against the future needs of the board and do a gap analysis to inform any recruitment process. The analysis may also highlight some areas on which the whole board would benefit from an expert briefing.

Tenure

The matter of executive director succession planning can be quite a challenge to navigate but boards ignore it at their peril. If the person has only recently been appointed and is performing well, or if they have been in post for a very long time and have indicated their wish to move on, then the situation may be fairly straightforward. Often the tougher call is when someone has been on the board for several years and a decision needs to be made about whether they are still the right person to continue, particularly if the organisation is facing a period of significant change.

NED succession should be easier – at least in theory! Best practice indicates that after three terms of three years NEDs may no longer be considered to be independent and it would be appropriate to plan succession after that. This can occasionally be contentious but you need to start somewhere.  There may be circumstances which mean it is desirable for a NED to stay on a little longer (or to stand down a bit earlier). It is the role of the Chair to manage this process and have the courage to have the necessary conversations. This is much easier if they are supported by the deliberations of the nominations committee. When Chair succession is the issue, a Senior Independent Director or if there is none, the most appropriate NED would be tasked with dealing with the matter. Once you have a NED succession plan, the skills you will be losing as individuals stand down can be factored into your gap analysis.

Pitfalls to avoid

Some of the things I have come across are:

“Our board is great, we have four members who have been CEOs.”
“We have lots of CEOs and CFOs to choose from so we are not considering anyone else” (for a NED role).
Boards always wanting people with experience of the same sector, first and foremost (for every new NED appointment).

You can see (I hope) that these approaches will not lead to a board which encourages diversity of thought from individuals with different backgrounds and experience. They can all lead to the dreaded “group think”. If the board is open minded enough to consider a more diverse range of candidates then they may be pleasantly surprised by the unexpected and discover that the board’s effectiveness is boosted by some fresh thinking.

A true story

 

 

 I will end with an anecdote from an all male board I worked with a long time ago. They were hiring a new NED – they improved diversity on the board by appointing someone who was not called John…

If you would like some assistance with a skills analysis for your board or with any other board governance and effectiveness initiatives please get in touch – lorraine@lorraineyoung.co.uk or here. 

If you would like these blogs delivered straight to your inbox you can sign up here.

Posted on

What is your strategy to keep the board strategic?

How to keep your board on track

The first of my five reflections for your board this year was “Is the board spending its time on the key issues?” So how does the board stay focussed on what it should be doing? The first point to consider is the board’s involvement in strategic planning as this will overarch everything else and can help avoid directors becoming distracted with operational detail.

How do you deal with strategy now?

Many boards have an annual strategy day to consider where the company is heading. Sometimes this is a fundamental review, with initial “blue sky” thinking followed by the development of a new strategic plan. Other times, the board reviews progress against the current plan and maybe tweaks it here and there to take account of recent and upcoming changes. Occasionally life (corporate activity, tough trading, unexpected developments) can mean that the normal board agenda is interrupted. If that was the case for you in 2024, then the start of a new year is a perfect opportunity to get back on track.

So who leads on strategy – and who should do? Often the executive team (directors and other senior managers) will have their own session to develop the strategy and then spend a lot of time preparing informative presentations which they “pitch” to the board. The NEDs acknowledge that this is a valuable opportunity to assess the executive team and see how well they are doing. Are there any rising stars where some carefully targeted talent management could result in them joining the board one day? However, it can also mean that the board is presented with a fully baked plan which it is asked to endorse. This then misses out on the opportunity for the whole board to contribute and for the executive team to benefit from the knowledge and experience which the NEDs bring.

How could you do things differently?

There are a number of ways to change the process and get the best from it.  For example, going offsite rather than being in the organisation’s own office can prevent interruptions and distractions. Using an external facilitator for the whole day or outside speakers for certain sessions will provide fresh persepctives. Ground rules, such as only looking at phones in the breaks can ensure better concentration on the task in hand.

The programme might benefit from the following:

  • Dedicated time for horizon scanning for risks and opportunities eg geopolitical developments, macroeconomic trends, technological advances, climate change, the evolution of the competitive landscape and so on
  • Preparing open questions and allowing plenty of time for discussion – don’t pack the day with presentations. The NEDs may actually get a better idea about emerging talent from a discussion than a well rehearsed presentation
  • Encouraging constructive challenge and debate
  • Having conversations in smaller groups if the board and exec team together is quite large.
  • Holding a board/exec team dinner for some pre or post strategy day discussion or to explore a particular topic in a more relaxed environment.

At the end of the day, check that you have set appropriate milestones and KPIs – both financial and non financial and decide when you will hold a follow up session and what you aim to achieve by then.

Conclusion

If you decide you want to do things differently in 2025 then the checklist below should get you started.

Posted on

My top 5 new year’s resolutions for your board

My top 5 new year's resolutions for your board

It’s that time of year again and I freely admit I have not made new year’s resolutions for a very long time.  It saves such a lot of disappointment when (never “if”) you break them.  I prefer to go for continuous improvement all year round!

However, the turn of the year can be a great time for some reflection.  In those few (hopefully) quieter days before everyone is back at their desks and fully functioning again it’s good to take a breath and think about what went well in the last year and what you might expect in the next – fully recognising that reality rarely matches any forecast.  

How might that work for any boards that you are on, or support?  Here are my top 5 things to consider for your board in January as you plan for the coming 12 months.

1. Is the board spending its time on the key issues for the business?

  • Are discussions strategic or does the conversation get mired in operational detail?
  • Does the board consider risk at an appropriate level – what are the high level risks to the organisation achieving its strategic aims?
  •  Does the board spend time “horizon scanning” to identify new and emerging risks – and opportunities?
  • Are we stuck in a rut – are there new areas we should be focussing on, such as the impact of AI both internally for business operations and externally for our customers and other stakeholders?

I find a board planner to be an invaluable tool to keep the agenda on track.  It is a live document which evolves as the year progresses and gives a rolling 12 month look forward at what the board will be considering. Reviewing this in light of the above questions can help refresh the conversations and reinvigorate the board.

2. Do board members' skills need a refresh?

Once you have the board planner in good shape the nominations committee can compare the knowledge, skills and experience of the current board members against what is required to take the business forward. This may lead to conversations about board development and/or succession planning.

3. Do the committees work well?

Given all that the board has to cover, are the delegations to committees working effectively?  And do board members who do not serve on particular committees feel properly informed about what goes on?

4. Is there healthy debate and challenge?

Is there any debate and challenge or is the board perhaps a little too comfortable? It’s very pleasant when everyone agrees but that should lead to the question about whether there is a danger of “group think”. Healthy debate and constructive challenge should mean ideas and proposals are properly tested before decisions are made and mistakes can then hopefully be avoided.

5. Is the board properly informed?

The age old issue of board packs still seems to be as relevant as ever today. Papers can be alarmingly long and deadlines for packs to go out can get ignored or missed. It’s worth reviewing packs regularly and inviting feedback from the board about possible changes to help them engage most effectively with the discussions in meetings.

So those are my top 5. What would you like to change for your board this year? Do send us your comments and look out for some more tips and insights on improving your board’s effectiveness over the coming weeks.

Send comment