Every board should have the ambition to shape the future success of the company and drive it to greater heights. The right mix of skills at board level will broaden the horizons and ambition of the business, stimulate opportunities, motivate and inform executive directors, and instigate change that will secure success. Bad boards rubber-stamp executive decisions and often just provide a veneer of good practice and governance.

Too often organisations fail to maximise the value of their non-executive directors (NEDs) because of avoidable mistakes. The most common pitfalls include:

• not having the right chair;
• failing to be sufficiently clear about what each board member should contribute;
• failing to source talent from a broad enough pool of candidates;
• not distinguishing between investor directors and independent directors;
• pursuing diversity for diversity’s sake;
• not conducting a proper candidate assessment process; and
• failing to run a proper onboarding process.

There are few high-performing boards that don’t have a good chair (or at least a lead independent director in the US, where the CEO and chair roles are typically combined). Strong chairs are defined by their ability to build a great relationship with the CEO, setting the agenda and tone for all discussions and bringing the discussion back on course when it goes off on a tangent. A strong chair is able to identify who can add most value and ensure they are heard, as well as bringing the most out of executives and non-executives sitting around the board table. They must be universally respected, great listeners and have the time to invest (big names often do not). If you haven’t got the right chair, forget thinking about how to choose the right NED.

As the saying goes: “If all you have is a hammer, everything looks like a nail.” One of the biggest dangers to the composition of any board is group mentality. Research clearly shows that cognitively diverse groups perform better, and it’s no different for boards. Before making a new appointment, an audit of the current board should take place to identify gaps and how the new board member will enhance the existing group. Important considerations sometimes overlooked include:

Are your stakeholders represented well within the current board membership? Do customers, employees, suppliers or other stakeholders who are important to the success of the organisation have someone who can credibly represent their voice at the table? For example, if 80% of your customer base or employees were millennials, would there be someone at the table who offered a millennial perspective?

Have you got a range of experiences around the table that are well matched to the strategic vision? Are you looking to grow the business in a specific region, acquire and integrate new businesses, digitise your operations, position yourself for a public listing or strategic exit, restructure or implement transformational change? Think about who can help you avoid the mistakes others have already made.

There is a life cycle of board members that needs to be considered for the board to operate at its full potential. There is an initial period where new board members are ramping up and learning about the business. At some stage, long-serving board members “go native” as their thinking becomes synchronised with the executive team. For a period in between, board members are in the Goldilocks sweet spot – not too hot and not too cold. It’s important to try to manage this average duration of the board’s tenure to ensure a range of perspectives is represented.

Sector expertise from board members who have been knee-deep in the operational and external challenges the business faces is invaluable. Don’t rely on investor directors to give the board the sector knowledge it needs. While often knowledgeable, they are no substitute for people who have worked at a senior level in the sector the business operates in. They are also ultimately conflicted given the parameters of their investment (eg, if they represent capital with a five-year fund life, they are unlikely to look favourably on investments by the business which require a 10-year horizon for a strategic payback). It can also be valuable to have someone who has proven to be mentally agile, who knows nothing about the sector, who can ask the so-called stupid questions.

How does your board think? The scientific frameworks for assessing how individuals think is still immature but it’s worth reflecting on whether you have a good mix of risk takers and risk avoiders. Have you got a mix of people who sense their way through problems (practical, detail oriented, literal, and so on) as well as those who use intuition (abstract, imaginative, etc)? Have you got devil’s advocates who like to challenge as well as visionaries who like to think in straight lines? If you have all come from similar backgrounds and now mix in the same circles, how likely is it that you will recognise, let alone challenge, each other’s assumptions?

However, it’s also important to avoid the trap of diversity for diversity’s sake. In the current political environment, we see a number of boards under huge pressure to improve their gender and ethnic diversity. At Nurole, diversity is the by-product of a well-run process, not a goal in its own right. If you cast the net wide enough, it’s unusual that the best candidates are not from a diverse range of backgrounds. But it takes a strong chair and board to resist that pressure when it’s not the right thing to do.

It’s surprising how often boards don’t put together a sophisticated candidate role specification – it’s not uncommon to hear of a chair looking for someone who “just fits in with the board”. If you can find someone who both fits in with the board and offers deep expertise across a range of relevant areas, it’s intellectually lazy and unforgivable not to actively seek them out.

It’s also common for organisations to underestimate how difficult it is to create a good role specification. Often, boards make assumptions about what the successful candidate should offer without properly examining those assumptions. A classic example would be boards who assume prior non-executive experience is an advantage. Chairs who are prepared to take a risk often reap the rewards of first-time NEDs who invest much more time into the role and bring much more current executive knowledge, which more than outweighs their lack of non-executive experience. Investing in a third party who can challenge your assumptions and a hold a mirror up to the board is usually worthwhile.

One of the most rudimentary mistakes we encounter is organisations who look to find non-executives through their own network to save on hiring effort and costs. Look at the way Premier League football clubs find new talent – they haven’t just looked in the local youth team, or at the big players in teams around them. They have made huge investments in scouts across the country and internationally to discover rising stars to fill the position they need and offer something not already in their ranks.

Finding the right board talent is a numbers game – if you’re looking for someone who is one in a million, rather than one in a hundred, you have to work harder. Source ideas not just from your network but your network’s network. If your board is adding the value it should, the effort or cost you have to invest in finding the right people is immaterial.

Of course, I would say that, as I am the chief operating officer of a technology platform helping organisations cast the net wider by crowdsourcing recommendations. But as an investor it’s something I have always believed. I’ve never been involved with an investment portfolio review that didn’t feature the board in the top three reasons for the investment’s success or failure.

And we see the benefits of this approach every day as organisations as diverse as Uber, Charles Tyrwhitt, Goldman Sachs, Intel Capital, HMRC, Comic Relief and the Prostate Cancer Research Centre uncover exceptional board-level talent they never thought might be interested, never knew existed, never would have considered or simply overlooked.

Low performing boards don’t give enough attention to the candidate assessment process. They lack structure and rigour. They haven’t invested the time in building a candidate scorecard or they lack the discipline to assess candidates properly against it. There is no shortage of research out there that highlights the limitations of a simplistic interview process. Too often boards assess candidates based on who offers the best “cultural fit” using interviews alone. This typically results in boards hiring more candidates in their own mould. Besides investing into the role specification up front, simple practical steps can be taken to mitigate this risk, such as role-appropriate practical tests (eg, provide someone with a board pack in advance and ask them to come with questions and observations), a diverse range of interviewers with clear mandates for each interview (include a mix of both the executive and non-executive team) and a structured referencing process that relates back to the scorecard.

Many boards fall at the final hurdle. Having gone to the effort of finding the right candidate, they fail to set them up for success. If a NED is to deliver the maximum value possible, then onboarding and ongoing education is a critical part of the process.

When Sir David Walker, former chairman of Barclays, conducted a review of corporate governance in the banking and financial sector after the economic crash of 2008, his first recommendation (of 39) was one that should be heeded by all businesses: “To ensure that NEDs have the knowledge and understanding of the business to enable them to contribute effectively, a board should provide thematic business awareness sessions on a regular basis and each NED should be provided with a substantive personalised approach to induction, training and development to be reviewed annually with the chairman.”

As part of the onboarding process, thought should also be given to performance managing your non-executives. It’s important to be clear about what success will look like, how you will know if they are not performing and what the exit process looks like.

To choose the best non-executive candidates, it’s critical that the executive team also understands the role. There is no better way to understand a role than taking it on, so chairs and others around the boardroom table should encourage executives to take on one NED position at a different organisation alongside their full-time position.

Not only will this provide an insight for the executives about the challenges of a non-executive role and how they might best help them, it’s also an effective development tool and way to cross fertilise best practice from other organisations and their boards.

It’s striking how few executives consider this. Lack of time is the usual reason given, but those who take on board roles tend to find the time invested quickly pays dividends. Interestingly, Nurole’s platform is seeing a growing trend in high-calibre executives taking on trustee board roles at well-run not-for-profits. They are combining the learning experience with a personal motivation for social impact, and in the process re-energising themselves for their full-time role.

Download PDF version:

• Business & Management Magazine, Issue 272, March 2019 (pp.24-27)

The author of this article delivered an accompanying webinar on 13 March 2019, talking through the steps involved in choosing the right Board member.

• Watch the recording
• Download webinar slides

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Further reading on non-executive directors is available through the resources below.