November 4, 2016 Measuring the board
It’s time to take a look at board dynamics. At least, it is if the results of a recent PwC survey are anything to go by. Their annual corporate directors’ survey looked at a range of issues from board composition to investor engagement and some of the results may well surprise you.
For example, would you say that your board works as a cohesive whole and is broadly in agreement on the major issues? Well you might think that but some of your fellow directors may well disagree. In fact, 35% of directors believe that at least one other board member should be replaced. Advancing age is given as one of the reasons for this belief but so too is a lack of expertise and unpreparedness for meetings.
When it comes to CEO succession planning the results are even more surprising. In many organisations the CEO leads the tone from the top and having a managed succession plan in place is vital in order to build on existing successes. Yet CEO succession planning is not being given the time or weight which it deserves; this despite just 29% of those surveyed believing that the CEO is performing as expected. Equally worrying is the fact that succession planning for directors still seems to be more matter of who you know rather than carrying out an external search for the most appropriate candidate.
What price board unanimity when some members believe that others shouldn’t even be in the room? And then there is the question of diversity. It’s easy to point to studies which highlight the way in which diversity can boost a range of factors including profitability, innovation and customer interaction but do board directors feel the same way? Well, 47% of directors believe that diversity leads to enhanced board effectiveness but that percentage disguises a gender split with 92% of female directors and only 38% of male directors being in agreement.
On a positive note, directors appear to be responding well to shareholder activism, seeing it as a driver of strategy, operations and capital allocation. In fact, in response to a range of questions about shareholder and investor interaction, directors appear to be responding more positively than they did in previous years. However, there are still some reservations with 21% of directors believing that they gain nothing from consulting with investors.
When culture, governance, reputation and profitability all stem from a united and proactive board, this survey highlights the importance of stepping away from simple day-to-day interactions and having the tough conversations. Whilst board dynamics are undoubtedly improving there is still some way to go before customers, investors and employees universally receive the benefit of a united board whose members bring their diverse talents and experiences to the benefit of the organisation.