Produced by Julie Garland-McLellan, Consultant at AltoPartners Australia and non-executive director and board consultant based in Sydney, Australia.

Contribution by José Luis Marcó, Partner at Seeliger y Conde / AltoPartners Spain. He specializes in the Industrial and Professional Services practices, Advisory Services in family-owned companies as well as evaluation and design of boards and corporate governance. He has served on a number of boards and is a Certified Corporate Director by HARVARD BUSINESS SCHOOL and certified in Executive Coaching by the ICF

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The Director’s Dilemma - December 2021

Norman chairs a not for profit company that is funded mostly through government grants and partly through membership fees and fees for service. The board members are all enthusiastic volunteers who have either expertise in delivering the services or experience of receiving them. None of them, including Norman, has board or senior executive experience in a business context.

The company is doing well and has been growing steadily through cautious additions to its scope of activity. Three years ago, they accepted some funding that had governance practices stipulated. One of these was a requirement to conduct a board review every three years and to have “an appropriately skilled” board. To keep receiving the funding, they need to undertake a review and develop a board skills matrix before the end of the financial year.

The directors are slightly concerned about how and what to review and very concerned about the prospect that some of them might be deemed insufficiently skilled and have to leave the board. They know that they don’t have great financial skills, but the accountant does a good job of keeping records and there has never been a problem.

How can Norman meet the governance requirements to keep receiving the funding without losing the great team spirit of his board?

José’s Answer

As Chair, Norman is the team leader and should steer his group to properly fulfill its duties. Norman needs a professional but clever approach: finding the areas current directors cover and hiring new directors to fill gaps, he should:

1. Work with a reputable board consultant to guide process and frame the assessment in current best practices.

2. Clearly communicate the process to be undertaken and obtain directors’ support. Assess the individual directors: “Are they guardians of mission, vision and values? Are they thinking strategically? Are they communicating in an effective and respectful manner, able to listen, process information and pose challenging questions…?”

3. Understand the expertise the board needs, in common and as a team. A board should have at least one expert in: products/services, business model and markets, operations and supply chain, IT/digital, intangible assets (risks and reputation), people & talent, finance and legal.

4. International best practice recommends boards of 8 - 10 members, a smaller company might have fewer. One board member may cover two skills. Norman’s matrix should link directors to expertise and identify any gaps. Any uncovered skill would require a new director with that specific profile. The current directors make diverse and rich contributions; they can be retained if there are no redundancies or overlap.

If Norman wants to keep his current team, and there are overlaps, he must determine if current directors have skills to fill new roles and work with them to align competencies with needs. If this is not possible, Norman must determine which board members transition off the board. To hire new profiles to fill the gaps, he must give a specific profile description to an executive search consultant.

Throughout the process Norman must display compassion, emotional intelligence and professionalism to ensure the process remains unbiased and fair, while seeking the best outcome for the company’s long-term future.

Julie’s Answer

You don’t need to be a ‘Wall Street Whizz’ to be on a board. You need to understand your finances, and to lead and supervise management. Norman’s board members have ‘appropriate skills’ if they have successfully grown the company to reach its current stage.

If directors are unsure that they have the requisite financial skills for the next stage, the answer is training; not ousting. To be a good director you must be able to read the financial statements. You don’t need to know how to write them or to undertake sophisticated analysis. That the board has a skilled accountant and is able to ask that person to explain things when needed, is already a good sign.

If the directors are feeling threatened by the forthcoming review, perhaps Norman can provide training before the review so that directors can truthfully claim to understand the basics of board financial oversight. This training will likely help directors in other areas and, being provided by the company, be considered a reward for their good service.

Even large listed companies don’t share a detailed (let alone an easily comparable and quantifiable) skills matrix. Good companies, however, do use one to help them develop and attract directors to keep the company growing and well-governed. A skilled consultant will be able to do a review, draft a matrix and help design some development and training to boost the skills of the board. Experience of receipt of the service is a valid skill to place on the matrix. Directors should find the review an energising and inspiring process.

The funding government has nothing to gain and much to lose by removing good directors who have grown the company. They will understand, support, and appreciate a process of board development.