Over the past year I have been privileged to undertake several external board reviews on behalf of client organisations. I am also the member of a board that itself engaged an expert external party to evaluate its performance.
The purpose of this short article is to share the insights gained from these processes.
Across a half a dozen boards in different industry sectors and at various stages of organisational growth and development, there were four recurrent governance themes on the minds of directors, including myself as an active governance practitioner. These observations are drawn from almost 30 one to one board and senior management interviews and related on-line surveys I conducted.
Four governance pressure points
1. The challenge of maintaining a strategic board focus
2. Getting the board culture and board-management alignment ‘right’
3. Board succession and director skill mix
4. Establishing a balanced, helpful approach to risk management
More details on each of these pressure points follows.
1. The challenge of maintaining a strategic board focus
Almost universally boards and individual directors reported that they would value more board time allocated to organisational strategy and to addressing medium to long term issues and challenges. The tyranny of keeping on top of day to day issues, and the ever present spectre of the compliance load, readily consume the time and energy required to focus on long term issues such as financial sustainability and business development. Even those boards that felt they were doing well in this domain reported that they had to constantly defend time and resources allocated to strategic matters.
Pressure points discussed by directors
• Overly long, detailed papers and lengthy board packs containing information of questionable governance-level value
• Crowded meeting agendas lacking blocks of time to absorb, discuss and reflect on complex issues.
• Poor presentation of management/operational information. The consequence being that at times directors have to trawl through the papers for meaningful performance data in the absence of reliable Dashboards and ‘Traffic Light’ systems. This was a particular bug bear for unpaid, not for profit directors.
• Less than optimal meetings processes whereby previous discussions were re-contested or revisited across board meetings.
• A variation on the above issue being boards revisiting the decision-making processes of committees, even when those committees had expert membership. Typically, the original committee recommendation to the board was eventually accepted.
Solutions applied
Boards reported a number of helpful approaches
• Setting strategy days and mid-year performance reviews in the Board calendar well in advance and not allowing such sessions to become operational or pushed back.
• One organisation had done a complete review of its board papers, conducted jointly by management and the board governance committee. Directors were highly positive about this process and the postive impact on streamlining meetings and lessening their reading load.
• Two boards had recently reviewed board committee Terms of Reference to tighten up roles and parameters and strengthen timely and productive communication flows.
2. Getting the board culture and board-management collaboration ‘right’
No board in this limited sample had experienced outright conflict between management and directors, or amongst directors, but most reported that their internal board culture could be optimised. The same tended to be the case for the relationships between the board and management. On a positive note, directors self-reported in on-line surveys that they appropriately modelled organisational values. When management were asked the same question about director behaviours, most concurred.
The challenges appeared to be:
• Establishing and maintaining a productive intra-board culture where directors can bring their best to the table in an effective and efficient manner. Some directors reported that they did not believe they added value to the board for a range of reasons.
• Ensuring that management were both challenged and supported by the board – a scenario I dubbed a ‘high performance-high psychological safety’ culture.
Management should be open to challenge, but boards must take care to challenge ideas, strategies, and options, not to attack individuals
One organisation at least appeared to have had got this balance right over time. To shed light on their achievement I developed a ‘high performance-high safety’ matrix illustrated in the 2 x 2 diagram below. The matrix makes the ‘what’ of high performance-high safety board-management relations clear, but the ‘how’ will the subject of another article. In summary, management should be challenged, but in a safe environment.
3. Board succession and director skill mix
Board succession, along with attracting and keeping directors with the necessary skills, was a universal theme. This challenge was particularly acute in the not for profit, charitable space, leading to renewed conversations amongst client boards as to whether or not directors should be renumerated or offered an honorarium given:
• The ever increased responsibilities directors hold; and:
• The time taken to do the job well.
This is an important conversation for another time about which universal agreement is unlikely - now or in the future. But director payment is out there as one solution to attracting NFP board members.
Boards also reported difficulties in engaging younger potential directors, those who are typically in career building phase, time poor and may have family commitments, which leads to a preponderance of older, retired or near to retired directors taking up ‘board duty’ in some industries and sectors at least. (It is unfair to say that the incumbents in this sample were ‘pale, male and stale.’ A more accurate, tongue in cheek view might be, ‘older, wiser, late career, and reasonably financially secure!’)
Interestingly, few if any organisations had at hand a compelling director Job Description or explicit value proposition to make use of in attracting new board members – as opposed to the weighty board induction packs that come with board appointments. In comparison, most organisations take a great deal of time putting together attractive information assembled for staff roles, particularly senior executive roles.
4. Establishing a balanced, helpful approach to risk management
This pressure point is related to the first issue, maintaining a strategic focus. Many directors were of the view that their current processes of risk management were time consuming and increasingly complex with short term, operational concerns crowding out focus on long term, high-impact strategic risks.
The current state of risk management at a governance level has been of concern to me for some time. On analysis, I have observed that the risk management policies, and risk management frameworks of organisations are essentially generic, even interchangeable, lacking the necessary granularity that actively links risk management at governance level to the specifics of actual operational contexts.
Boards widely adopt risk management approaches that are fairly standardised. For example:
• An overarching policy document on risk often quoting the ISO definitions.
• A risk appetite statement or statements.
• Risk-consequence matrices.
• The use of Excel spreadsheets or other software to group and document myriad risks in the form of numerical or text-based values given to risk-likelihood, risk impact, risk mitigation and the residual risk that remains after the so-called ‘treatment.’
If the ticks are in the right boxes, and the policies technically correct, you have a risk management framework.
Yet even in smaller organisations risk management can be a complicated and off-putting process for non-expert directors. I have completed 3 or 4 risk management courses but did not find them particularly informative or helpful beyond the definition of terms and outlining of acceptable approaches to risk - as described above.
Over the years I have rarely heard the current risk management norms challenged in professional governance contexts. Why, for example, do the terms ‘risk appetite’ and ‘risk tolerance’ continue to be used in organisations and sectors where they are inappropriate. For example, the board of a hospital that does complicated surgeries must embrace a level of ‘risk appetite’ that accepts patient deaths and misadventure: a percentage of fatalities being avoidable. Charities that run services for the most vulnerable will experience fatalities and serious injuries amongst those they care for. Perhaps the events will be preventable, perhaps not. Satellite launches are inherently prone to catastrophic failure due to the extreme technical complications involved in safely and reliably breaking free from earth’s gravity. These kind of organisations do not have an appetite or tolerance for death or severe misadventure, they operate in sectors where death and misadventure are the norm.
Another current example is the armed forces. Send men and women to war and casualties are inevitable. Yet as a recent Royal Commission into veteran suicide demonstrated, the most dangerous time for soldiers can be after they return from conflicts or stressful overseas’ service. Yet until recent times, armed forces’ risk management protocols paid scant attention to protecting soldiers from psychological harm and addressing the long term, high impact of PTSD. The subsequent toll on individuals and their families has been horrendous...
Back to the recent sample of organisations I engaged with. Some level of concern with the helpfulness, accuracy and functionality of risk management policies and processes was present in almost all cases.
Re-thinking risk
I am of a view that the approach to risk management in organisations should be up for review and reform – including shedding concepts, terminology and approaches that are no longer useful or appropriate.
I look forward to giving more thought to the future of risk management - and governance in general - in 2025.
Philip Pogson FAICD, January 2025
Philip has been a company director, Chair, and business owner for 25 years. He consults and advises on strategy and governance across a range of business sectors and also co-owns and operates a music production and promotion business.