I've been involved in several discussions about risk management recently, including one at a Business Leaders Forum hosted by Grant Thornton. Most of the discussions have centred on the struggles that Boards face in managing risk—and more specifically, ensuring they are adequately informed. In listening to people, I've discovered many Boards struggle in this area. 

• How do Boards know all relevant risks are being notified?
• How big (or small) should risks be before they are reported? What is relevant?

Let's tackle the second question first. In most organisations, management has the responsibility to implement strategy. Therefore, they also have the responsibility to identify and manage risk. In doing so, management should raise (with the Board) all risks that have the potential to compromise their implementation of strategy—together with mitigation plans. Anything with a strategic impact should be reported. If Boards are not receiving relevant risk information, they should go looking for it.

That leads nicely to the first question. In my [direct though anecdotal] experience, most risk information tends to arrive via management. Though the common pathway, it is not without its problems. Many Risk Managers report up though the CEO. Even external Auditors tend to be retained by the CFO and report via the CEO. And therein lies the problem. Who decides what gets reported to the Board? Why would a CEO notify a risk that exposes him/her to extra work and/or uncomfortable questions from the Board? Oh, the foibles of human nature... 

Whereas most Boards receive risk information via the CEO, several of the high performing Boards that I've worked with seek and debate risk information directly—from staff, customers, outside advisors. They also do so in the context of strategy. Boards that open several channels are more likely to be adequately informed and, consequently, be better positioned to assess strategy implementation and ensure risks are managed effectively.

Boards need to ensure that they are adequately informed, and the best way to do that is to work directly with a range of internal and external sources. While this approach sounds straightforward, it has the potential to cause angst amongst management if not handled well. The CEO should be kept fully informed of risk discussions, and, ideally, be present when external advisors make presentations to the Board.

One final point. If risk mitigations are not being implemented effectively, and the achievement of strategy is being compromised as a result, then the Board should replace the CEO.

Last week, I was invited, with 16 others, to help review a Competency Framework being proposed by the Institute of Directors. I commend this initiative, aimed at raising the bar. While competency of itself does not guarantee that any director will be effective, it is a move in the right direction.

Last week, I was invited, with 16 others, to help review a Competency Framework being proposed by the Institute of Directors. I commend this initiative, aimed at raising the bar. While competency of itself does not guarantee that any director will be effective, it is a move in the right direction.

During the wide-ranging discussion, several participants suggested that governance should be professionalised, like medicine, accountancy, law and several other professions. I support these calls—strongly. Why? Well, stories like this get under my skin. While the majority of directors fulfil their legal and ethical responsibilities well, sadly there are a few bad eggs that discredit governance in the public's eyes.

The mechanism would be relatively straightforward, involving perhaps:

• entrance tests (competency, references and interviews)
• maintenance of professional standards (on-going education)
• periodic re-registration (two- or three-yearly)
• tiering (a general registration, and a higher level for directors of large, widely-held or publicly-listed companies)
• a disciplinary tribunal (with teeth and a propensity to act)

The Institute's optional accreditation scheme provides a useful starting point, but it falls short because participation is optional. In my opinion, governance must be professionalised, with a robust body and process not dissimilar to medicine (Colleges of Practice, Medical Council of New Zealand, Disciplinary Tribunal). Perhaps then the concerns expressed in the article—that directors can dodge bans—will become a thing of the past. Here's hoping.

I agree with Baker and Mowbray. Governance is a socially dynamic phenomenon, with many variables and much complexity. Numerous researchers and practitioners have investigated structural and composition factors over many years. More recently, world-class governance researchers, including Leblanc, Huse and Nicholson, have investigated behavioural and process factors. To date, the research findings have been inconclusive, and causality with performance is yet to be established.

Despite flights of fancy from some commentators, slow progress by researchers, and much frustration all round, the search for a link between governance and company performance is of enormous practical importance. Therefore, efforts to understand the mechanisms within the governance phenomena, and any relationship with company performance, must continue. However, the research agenda much be changed. Attention must move away from consideration of individual characteristics—toward a holistic consideration of governance—if further insights are to be gained and any clear understanding is to be achieved.

My doctoral research efforts attempt to build on Leblanc and Nicholson's work. I plan to use a longitudinal multiple-case study approach (to understand the processes, behaviours and dynamic interactions within the governance system) to focus on the way Boards make decisions. Strategic decision-making has been postulated to be an important factor in the governance–performance relationship. If this is correct, a link between a strategic decisions and subsequent improved company performance should be apparent, after some longitudinal delay. The challenge will be to determine whether or not strategic decision-making can be attributed to the Board.

So where does this leave us? I certainly don't have any silver bullets, and progress is likely to be frustratingly slow. Boardroom diversity is important, however I suspect a focus on decision-making and related factors will reveal more about board performance than arguments about the number of women at the board table. Let's push on.

Periodically I hear directors introduce themselves with "I'm a professional director". Sometimes, they add "I sit on NN Bboards", where NN could be as high as eight or even ten (boards). Wow. Presumably this means all of their income comes from director fees, and somehow more Boards is better or more prestigious. Am I impressed? Not really.

The core role of any director is to maximise the performance of the company they serve. But how can they do this effectively if they spread their time across as many as eight or ten boards? Ten boards means a maximum of two days per company each month. In this scenario, how can any director possibly understand the issues and strategic options sufficiently well to contribute effectively around the board table? 

Governing a company is demanding. It takes time to understand the issues. Can a director have too many irons in the fire? The stories starting to emerge in the media suggest the answer is a clear "yes".

Earlier this week I attended a dinner function with 16 others, to hear a well-regarded Director and Chairman share his thoughts and experiences about leading the Board of a high-growth company. Amongst some great insights, he suggested three areas that Boards of high-growth companies need to focus on closely:

• Capital: Boards need to ensure the company has sufficient capital to fund its growth plan. Otherwise, growth will be limited by available funds, and that inevitably means slower growth, and may mean important market opportunities are missed.
• Capability: Boards need to ensure the company has sufficient people capability to execute its growth plans. That means recruiting a CEO capable of leading the company effectively, both now and in the future. It also means encouraging the CEO to recruit high capability people into key roles, lest the growth of the company outstrip the manager's ability to execute.
• Culture: Driving growth is often hard work, so everyone needs to be on-board. The Board needs to ensure (through the CEO), that everyone is working to the same goal, and that they are signed up to an agreed set of brand/company values. People who can't sign up should be given the opportunity to "get off the bus".

Sounds easy on paper! What do you think?