Brilliant Board Conversations

When engaging with Chairs about their board’s effectiveness, they rarely bemoan the clarity of their terms of reference. Those are taken as given. More often than not, it is something around the interaction between Non-Executive Directors and senior managers of the business, and the health of their respective relationships.

To ensure boards work effectively, we have in place the rule of law, corporate governance codes, and company articles with clearly defined roles and processes for the board and its sub committees.

All of this can be assessed and assured, by examining the internal governance processes, schemes of delegation and actual practice, and evaluating the independence of non-executive directors and their engagement with the business. However, a board may have all these elements in place, and still not perform effectively. Why is this so?

It’s not just about process and specification…

Whilst board role, process, structure and specification are important and necessary, on their own they are not sufficient elements of effectiveness. For example one board prided itself on the efficiency of how it undertook its duties, and on paper was performing to standard procedure. However there emerged an underlying issue around the dominance of some of the NEDs in how they challenged the senior managers, that was having the impact of senior managers avoiding or hiding information from the board. Not a recipe for success.

The dominant driver of board effectiveness is behaviour, team dynamic and capability. A Board, unlike an Executive team, is deliberately made up of independent-minded Directors, with different stakeholder representation, requiring independent thinking and challenge. And so, it is the individual and collective qualities of the board members and how they interact that determines how effective the board is in making decisions. It’s not a cosy team.

This is reflected in the more recent governance codes of conduct (1 & 2). The 2018 Corporate Governance Code (1) stipulates that the board should “… satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture”.

But how can a board imbue that sense of purpose, integrity and promote a desired culture? It needs to do this through how it behaves – how the non-executives or Trustees use their power wisely in how they interact with, and influence, the executives to lead the business.

Understanding the Board dynamic

Board behaviour is an interplay between ethos, logos and pathos, a complex series of trade-offs played out through multiple personalities and agendas.

• The combination of Logos and Ethos help the board apply reasonable judgement to complex issues and ensure the board deals with issues at the right level of materiality. At some point the drive for ever more detailed data has to stop and judgements made. Judgements made on the balance of risks and probabilities and the values (ethos) we hold dear.
• Logos and Pathos help in getting the balance right between delivering robust challenge in the boardroom, and providing appropriate support outside the boardroom, without removing the executive’s sense of accountability for performance.
• Meanwhile Ethos and Pathos ensure that the board member gains trust of the executives and so enables them to exert their power in a constructive manner.
• Power, its form and balance are rarely discussed. Non-executives typically feel powerless, wonder whether anybody takes notice. Chairs are perceived to be powerful but rarely feel it. Chief Executives fret about where the power lies in a board. The formal powers of the board are few but major. So power is more subtle, through the prism of ethos, logos and pathos.