Nearly half of Non Executive Directors (46%) do not feel that their experience and knowledge is leveraged to full effect often enough by the Boards they sit on according to a new study(1) by Korn/Ferry Whitehead Mann and KPMG. The research was conducted on behalf of the Good Governance Forum, created in 2010 by Tomorrow’s Company.
Korn/Ferry and KPMG surveyed 300 non-executive directors and Chairmen from FTSE 350 companies about their experiences as independent directors (conducted in January 2012). The survey addressed their broad experience as Directors as well as gathering specific insight into the conversational dynamics of the Boards the sit on.
They found that 47% of the respondents feel that their executive Board colleagues don’t usually see them as valued business partners and one in five sometimes or regularly feel out of their depth in Board room discussions as they have been provided with insufficient information.
The survey found that only 37% of boards regularly consider how they could improve the quality of debate and interaction, and that 39% rarely or never address the issue. The remaining 24% only consider Boardroom dynamics at the time of the annual Board review. The Good Governance Forum is urging boards to review how they interact on an on-going basis rather than just annually.
Tony Manwaring, CEO of Tomorrow’s Company said: “The survey results reinforces discussions with many NEDs that the range and quality of conversations strongly correlate with the effectiveness of boards. Boardroom conversations matter and looking more closely at them can provide valuable insights into the deeper functioning and health of a board to the benefit of the company as a whole.
“There is compelling evidence that major corporate failures result from behavioural and cultural weaknesses resulting in huge losses in shareholder value – effective conversations build and protect value and help businesses shape strategy, manage risk and build resilience.”
The study found that the most important characteristic of those boards that have effective conversations is the quality of the Chairman, cited by 93% of respondents. Ensuring that board members have a real interest in the company and its activities is cited by 88% of respondents, and ensuring adequate preparation for board meetings by 75%. Over half of the independent directors surveyed (55%) said that the diversity of the board was an important characteristic for ensuring effective conversations in the boardroom, and 50% cited the importance of having a mentality of collective responsibility.
Richard Emerton, Head of Korn/Ferry’s Board Practice, EMEA, explained: “The behaviour and effectiveness of boards is coming under increasing external scrutiny in ever more complex business environments. The role of independent director has grown in importance markedly in recent years, yet our survey shows that, whilst significant steps have been taken to get the right Independent Directors with the right skills around the Boardroom table, much more is needed to maximise the value that can be extracted from them once they are there. It is also good to see that the Board review process is at least providing an opportunity for an annual look at Boardroom effectiveness; however for too many companies it seems that the review is used as an excuse not to have a continuous improvement culture.”
The most common reason for poor or ineffective boardroom conversations was having a dominant personality or group of personalities on a board, cited by 79% of respondents. Inappropriate allocation of time at board meetings is another important reason (52%), as is a lack of preparation by board members and other attendees in advance (50%).
Timothy Copnell, Chairman of KPMG’s UK Audit Committee Institute, noted that “Successive Corporate Governance Codes have driven the ‘professionalisation’ of UK Boardrooms, but there is still some way to go. The survey findings illustrate that both behavioural and procedural aspects of corporate governance are important. It is worrying that the destabalising effect of dominant personalities in the Boardroom is still a concern for many non-executive directors despite the formal separation of the Chairman, CEO and senior independent director roles. Nevertheless, it is clear that some strong chairmanship and meaningful Board assessment should be well placed to address this issue as well as any ineffectiveness caused by lack of preparation and poor time management.”