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Reputability LLP are thought leaders in the field of reputational risk and its root causes, behavioural risk and organisational risk. Our book 'Rethinking Reputational Risk' received excellent reviews: see www.rethinkingreputationalrisk.com. Anthony Fitzsimmons, one of its authors, is an authority and accomplished speaker on reputational risks and their drivers. Reputability helps business leaders to find these widespread but hidden risks that regularly cause reputational disasters. We also teach leaders and risk teams about these risks. Here are our thoughts, and the thoughts of our guest bloggers, on some recent stories which have captured our attention. We are always interested to know what you think too.

Monday, 27 November 2017

Designing Better Boards


At a recent workshop, Tom Peters tackled board composition.  His prescription for a perfectly composed business board of ten?
  • Two under-30s
  • At least three women
  • One data and IT 'superstar'
  • A brace of entrepreneurial 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, taken from his forthcoming book "The Excellence Dividend", provides ample ingredients for vigorous discussion about board composition.  We would add two more categories to the cauldron:
  • at least one person 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 types with the character to deliver constructive challenge. Good lawyers, academics and journalists should have skill and curiosity needed: but without the strength of character to challenge and persist they are worthless.

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
London
www.reputability.co.uk 
@Reputability

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