Building director capability: observations from the field

The opportunity to work with new and aspiring directors to build capability is something I find most gratifying. Regardless of whether the task is to facilitate an established course (Institute of Directors' Company Directors Course), pilot a new one (Governance Institute of Australia's The Effective Director Course) or run a private workshop with a board, the sense of fulfilment amongst directors as they grapple with situations, gain new insights from their colleagues and learn more about the role of the director is often quite palpable. However, the learning experience is by no means a one-way street. I also expect to (and do!) gain new insights. Here are some of the themes that have been apparent in the sessions I've led this year:

• The importance of a learning mindset is increasingly accepted. While the concept of governance is both straightforward and stable (the root word is kybernetes, meaning to steer, to guide, to pilot), the practice of governance (i.e., what boards do and how directors behave) is inherently complex and quite dynamic—even more so when the incessant march of new ideas and technologies is added to the mix. Directors need to commit to a programme of continuous learning if they are to remain current and make relevant contributions. Anecdotal comments shared in workshops this year indicate that some directors now allocate as many as five hours outside the boardroom for every hour in board meetings. In addition to reading and understanding board papers, these directors say they read widely about emerging ideas, trends, technologies and good board practice recommendations, to ensure a sufficiency of knowledge about the market/sector the company they govern operates in and new opportunities.
• Traditional models of board–management interaction based on separation are breaking down. Historically, the board was conceived as a proxy, positioned between absentee shareholders and managers. The underlying assumption (agency theory) was that managers had different priorities from shareholders, so the board had an important role to keep potentially miscreant managers in check. In practice, a clear separation between the functions of corporate governance and management, including the appointment of independent directors were thought to be important for more objective decision-making. However, these recommendations are increasingly being questioned by both directors and emerging research. Proximity may actually be more conducive to effective contributions and higher quality decisions than separation and distance.
• Compliance demands continue to dominate the agenda. Regardless of emergent calls for boards to intentionally contribute to strategic management in pursuit of future goals (purpose), the dominant focus of many boards remains one of compliance—to interrogate historical business performance (last month's management and finance reports, sound familiar?) and check that regulatory requirements are being met. While the task of monitoring and supervision should by no means be ignored, the protection of professional and personal reputation continues to be a more important consideration for many directors than company performance.
• Composition remains a priority for many boards and shareholders. Many boards and shareholders continue to be enthralled by board composition, in search of the 'best' configuration. The number of directors, independence and diversity have all been argued to be important at various times. However, none of these (or any other observable factors) are directly predictive of better performance outcomes. Rather, effective directorship is function of board activity and director behaviour. 

For more information about these or related topics, or to discuss implications for practice, please get in touch.