Board Evolution: Is the structure fit for the future
At Berwick Partners we have recently undertaken a research project looking at ‘Board Evolution’. From our conversations with numerous CEOs, NEDs and Chairs, we have been able to highlight five areas which will be critical to the evolution of boards as we move out of the COVID-19 crisis: board structure, the importance of business culture, a focus on diversity & inclusion, the need for strong communication and the growing pressures of ESG and sustainability. Here we look at board structure…
Given what the world has endured over the last 18 months there is a resounding opinion that Risk Management required far more focus than it currently receives in a number of industries however, representation of additional or different functions on the board is not believed to be required. Instead, organisations must focus on better development of board members (both current and future), empowering them to become T shaped leaders, rather than functional experts providing narrow, functional-driven opinions on broad business issues. Their understanding of the impact of board decisions at a deeper functional level should be shaped by their -1s which in turn, exposes those aspiring board members to broader issues.
What the leaders had to say…
It seems obvious, but the board level positions that your PE firm hold must add value. Perhaps a controversial view, but I have often seen PE firms taking a second seat at the table and using it purely as a learning & development tool for their people; does the business get value from that?
Sonia Davies (CEO of PE-backed Leisure Business)
Broadly speaking in terms of PLCs, I do not believe further functions need to be on the ExCo. There is a risk that effectiveness becomes diluted and dialogue becomes less open, less challenging. Instead, we should be focusing on ensuring diversity of thought amongst the ExCo and empowering people to become business-leaders, rather than pure functional experts.
Claire Catlin (CFO of PE-backed Leisure Business)
Senior leadership roles are now morphing, and roles are becoming broader – COVID was a further accelerant. For example, Marketing Directors are becoming experts in brand, data, digital and tech. This is broadly very positive however, CEOs need to be mindful that if these people leave the business, so does their breadth of expertise. To manage this risk, we need to focus on developing our emerging talent into broad business leaders ready for the ExCo.
Peter Boddy (Chairman of PLC Leisure Business)
Planning and risk management need to be buried into the exco. At present no one is responsible for risk…. the Board should be looking at what storm clouds are coming and then ask the exco to factor that into their strategic five-year plan. But who really is responsible for risk management?
Cambridge Centre for Risk Studies -Michelle Tuveson and Danny Ralph
You cannot build a board in a traditional way – you need to build a board for the future. Audit and risk are developing – they used to be heavily audit focussed but now a forward-looking approach to risk is becoming more important.
Adam Marshall – Director General of BCC
Having a strong and experienced Chairman, in these times is essential. Being able to advise on issues such as deferring dividends, share buy-backs, how to manage shareholders, and what advisors to call upon, is hugely beneficial. It is about knowing all the questions that need to be asked.
A Board and ExCo that has a lot of bandwidth is key – this provides the ability to navigate through a lot of things at the same time and helps you ‘manage in the grey’. From a corporate governance point of view every board needs a strong CFO.
Rob Fenwick, Chief Risk Officer, Howdens Plc
Preparing future talent for what life can be like on the board can be done in a structured way. You know who the rising talent in your organisation is, so enabling them to interact with the board, perhaps through asking them to deliver a strategic project or by involving them in a debate. Brief them regularly on how the company is performing and what the shareholders are thinking.
Tim Cooper, NED, Renold Plc & Pressure Technologies Plc
Diversity of experience is crucial. 65% of the revenue of my business came from Europe, yet the majority of the ExCo were Brits, based in the UK. I altered this to reflect our markets. I also ensured that the personalities worked and placed great emphasis on selecting the right personality for the role. There is a tendency in general to overlook this, but I get a sense that this improving and boards are becoming more mindful of this match. Functional insight and experience will only get you so far.
Further down he business, it is about giving them as broad an experience as possible and encouraging them move functional areas, sectors, and cultures – work overseas for example in order to develop the required skills and experience to progress through the organisation.
Oliver Cock, MD Brand Deployment, Communisis
From a board side they could benefit from being a bit braver – look what someone can bring to the table versus just plugging a gap with a function for the sake of it. Look for emerging talent within the organisation and coach them on their development. I was encouraged during my time with Centrica to gain external board experience – this was wonderful exposure and gave me a real sense of the makeup of a board and each and individuals role within that from the Chair, board, exco and NEDs. This experience helped me tremendously when given the opportunity to join a main board myself and something that I would support in all the organisations I have worked for since.
Heather Benjamin, Chair of Air Ambulance UK and experienced NED across multiple sectors
I see two tracks – the first is those companies in the eye of the storm: crisis and distress. Their ‘strategic review’ is a way off as they are in survival mode. Second is those who survive, they must consider a deep review of operating model, strategic approach, to embrace change and realise what is needed for the future. If you throw digital into this mix, there is much to be done!
Peter Thomas – Interim SME CEO & Board Advisor
I do not believe there will be a change to the composition of boards especially off the back of the pandemic. I don’t think there is a need to increase the number of people on the board; there may be a need for a risk officer in a larger company, however I would argue that the CFO and other members should be concentrating on this and therefore, there is no need to create a new role and complication. Too many additions make it to complicated. Instead, perhaps the answer is the creation of subcommittees to look at these issues this way the right people in the company can be brought together, giving further exposure to the board.
Christophe Berthoux, Chairman at Futuremeds & Chairman at IAG
I believe COVID has changed the boards outlook for the foreseeable future. Previously long-term strategy etc now much more focused on the short-term cash flow/forecasting. It has made them look much more at the here and now rather than the future. Almost brought a Mystic Meg aspect of having to ensure they have contingency plans for unseen eventualities.
Now that there is a glimmer of a way out this focus has changed to forecasting but again with a short-term view of a year / 18 months rather than focusing on 3/5-year strategy.
Matt Tate, CEO at Gentronix
One of the biggest challenges of a board is to ensure that new board members are introduced at the right point of evolution of a company. Companies evolve naturally and need to ensure that members are appropriate for the next stage. They need to have the right balance of individuals who can support the SLT but also push back and challenge.
Neil Bell, Chief Development Officer at Avacta, NED at Merit Health
Composition needs industry knowledge and individuals who understand the technology. However, it also needs generalists to bring a different perspective, cross boundaries, and fertilisation.
Dylan Jones, Chairman at Devoted Pet Foods and Vice-Chair at Healthcare Management Trust
Two businesses that I am Chairman of have not changed their board structure, because they have not needed to. However, in parallel with COVID-19 we have all had the Brexit process in play. With our international strategy in focus this has made us recognise that our future leadership will need more European / international experience.
Nick Brayshaw Chairman, Sentinel Performance Solutions, Technical Fire Safety Group, and Kingswood Capital