About Me

This blog carries a series of posts and articles, mostly written by Anthony Fitzsimmons under the aegis of Reputability LLP, a business that is no longer trading as such. Anthony is a thought leader in reputational risk and its root causes, behavioural, organisational and leadership risk. His book 'Rethinking Reputational Risk' was widely acclaimed. Led by Anthony, Reputability helped business leaders to find, understand and deal with these widespread but hidden risks that regularly cause reputational disasters. You can contact Anthony via anthony.fitzsimmons At cranfield dot ac dot uk

Monday, 27 November 2017

Designing Better Boards

At a recent seminar, Tom Peters tackled board composition.  His prescription for a perfectly composed [non-executive] board team of ten?
  • Two under-25s - they will have a different experience from their "elderly - 35 year old - peers"
  • At least three or four women
  • One data/IT 'superstar' - a "certified goddess or god from the likes of Google"
  • A brace of entrepreneurial or VC types
  • One person of stature who seems weird - Peters suggested artists, rappers, rock musicians and shamen because they look askance at the world.
  • A design guru
  • No more than two over-60s
  • No more than three MBAs
That spec, one of many gems to be taken taken from his latest book "The Excellence Dividend", provides ample ingredients for vigorous discussion about board composition.  We would add three more categories to the cauldron:
  • At least one non-executive director (NED) with a deep understanding of how the business's markets work;
  • At least one NED who understands how people work: a graduate in psychology, sociology or social anthropology, preferably a strategic HR 'superstar' too; and
  • At least two highly analytical NEDs with the detachment to see outsider views and the character and social skills to deliver constructive challenge. Good lawyers, academics and journalists should have skill and curiosity needed.  But they also need both the strength of character to challenge and persist; and the social skills to ensure their critiques are internalised by those who need to hear them.
How do these characteristics compare with real boards? We have extended our recent survey of mainly FTSE100 companies to include Non-Executive Director (NED) board composition as described in Annual Reports.  We thought it would be interesting to include regulators too.  Using website information we have similarly analysed the boards of the UK's main financial regulators, the FCA, FRC and PRA; and three non-financial regulators, the IPCC (police), the SRA (solicitors) and the CQC (healthcare).

Here is a snapshot of our results.  Bear in mind that they represent what these companies and regulators have decided to say about themselves and that the figures are not about Executives but NEDs.

UK BoardsLarge UK CompaniesFinancial Regulators Non-financial Regulators Population Baseline
Females % 31%27%32%51%
BAME % 3%0%16%14%
CEO or MD experience?46%48%26%
C-Suite experience94%61%48%
Relevant trade?52%52%29%
HR experience2%0%3%
Psychology, behavioural economics and social sciences1%3%10%
IT and Data experience?9%0%3%
Journalist, Academic or Lawyer7%9%35%

Beginning with social justice, it is well known that women still trail men; Black, Asian, and Minority Ethnic (BAME) populations are even more under-represented in all except our sample of non-financial regulators.

It is reassuring that about half of FTSE board members have experience of their trade.  But it is disturbing that over half of financial regulator boards appear to be drawn from people of the kind they regulate.  The same is true of the SRA which is dominated by solicitors.  The problem is only slightly less acute as regards our other non-financial regulators.  

People with experience in and around the C-suite overwhelm FTSE boards and are a major presence elsewhere.  Such people, with their years of experience of leading large organisations, are an essential part of any board.  But their dominating presence is risky because it limits board perspectives, attitudes and horizons.  Most of the real world lies beyond the C-suite's knowledge horizon.  Shared perspectives and attitudes are as dangerous as they are comfortable. 

Not all Annual Reports in our cohort provide age data, but for the seventeen companies where age data was provided, the youngest NED was 44, the oldest 80 and the average 60.  7% were under 50 and 55% were over 60.  This probably reflects the predilection for people with CEO and C-suite experience.  For comparison, Facebook's youngest was 41, its oldest 72 with the average at 54; though at Alphabet, Google's owner, ages ranged from 57 to 71 with the average at 65.

All organisations, even Tech giants, are still dominated and led by people, but NEDs with deep knowledge and skill in understanding how people really tick are rare.  Such people have degrees in subjects such as psychology, organisational behaviour, behavioural economics, sociology and anthropology.  Some may have been HR stars.  We found virtually no such NEDs.  Our non-financial regulators did slightly better though the sample size was tiny.

It is the same with IT and data.  Organisations no longer use IT and use data.  They depend on IT and data just as life depends on water; but boards lack Peters' IT superstars.  9% of NEDs with IT experience looks reasonable.  But a third of those in our sample were in just four companies in the IT, media and telecoms sector - essential trade skills.  Of the balance, over 70% of our cohort, had no board member with declared expertise in this field.

Those with obvious professionally honed challenging skills were also rare.  Less than 25% of companies had a lawyer on their board.  Of six academics on boards, three were medical or pharmaceutical professors on pharma boards.  We found no journalists.

Our research, highlighted in 'Rethinking Reputational Risk - How to Manage the Risks that can Ruin Your Business, Your Reputation and You' shows that inadequate board skills - not just IT and people skills - and ineffective challenge were among the most frequent causes of failure in almost all our 40+ case studies.

Adapted from 'Rethinking Reputational Risk' Fig 14.1 © the authors

These criteria for well-constructed boards do not pretend to be a perfect, universally applicable set of rules.  Neither are they comprehensive: for example they barely touch on personal attributes such as NED character. But they do provide a useful set of attributes against which to compare your organisation's NEDs.  So I shall leave you with five questions:

  • How does your NED team compare to these criteria? 
  • Where are the gaps and what are their consequences?
  • What do you believe is wrong with or missing from these criteria, and why?
  • What do you believe is wrong with or missing from your own board's NED team, and why?
  •  How would you change your own board's composition to make it more effective?

Anthony Fitzsimmons
Reputability LLP

The research behind this post is explained in greater detail in Rethinking Reputational Risk - How to Manage the Risks that can Ruin Your Business, Your Reputation and You You can get a 20% discount through this link by using the code RRRF20

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