Time to de-couple Audit & Risk?

Ditch the Audit & Risk Committee? That’s governance heresy, surely?

Bear with me for a moment:

The ‘ARC’ or ‘FARC’ (Finance, Audit & Risk Committee) is often seen as vital for best practice governance. Surely it shows that directors are prioritising protection of the business and assets they’re responsible for … doesn’t it?

But is this really true?

What types of people do we need on these committees?

  • For Audit, we think of financial literacy, an understanding of financial reporting and internal controls, typically the ability to get into the detail, drilling into how the company actually operates and measuring it accurately. We need these people. These functions are crucial for the business, ensuring we stay solvent, have the internal protections and controls we need, and that our reporting is not only accurate and compliant with the standards, but also timely.
  • Now, what type of people do we want for our Risk Committee? Risk requires a different mindset. While financial and compliance risks matter, they’re seldom the ones that threaten a company’s future. The real dangers are more likely to come from strategic over-reach or external events we can’t control – natural disasters, trade or shooting wars, pandemics, or shifting social attitudes. We’ve all navigated some of these in recent years.

In my experience, these strategic and external risks seldom sit high on the agenda of a committee focused primarily on finance, accounting and compliance. Similarly these guardians of our financial integrity and legal conformance aren’t always those best suited to the forward- and outward-looking work of Risk oversight. (For more, see my earlier post, ‘Who saw that coming?’)

I’ll admit: this isn’t an original idea. In 2009, Sir David Walker reviewed the British banking system after the Global Financial Crisis. He noted that many failed banks had Audit & Risk Committees, yet few had anticipated the ‘Black Swan events’ of the previous two years. Walker recommended separating these committees, particularly for larger institutions, but for reasons slightly different from mine, arguing mainly that Audit Committees were already overburdened.

Let’s take Sir David’s thinking a stage further:

  • Who’s responsible for overseeing development and implementation of our Strategy? Typically, the full Board.
  • Risk, defined by the International ISO Risk Management Standard as ‘the impact of uncertainty on objectives,’ is neutral – neither good nor bad.
  • If the Board is responsible for Strategy, why wouldn’t it also oversee the ‘uncertainty’ around achieving that Strategy?
  • In the same vein, why not also put Risk under a committee of the whole Board, so all directors can contribute?
  • Who then should chair this committee? After leading powerful debate and helping to develop great Strategy, our Board Chair is perhaps not the most effective leader for our discussion on what could possibly upset it. I typically recommend that we invite another senior Director to chair our Risk committee.

So, will you de-couple Risk from your Audit Committee?

Or will you stick with the more traditional model – if so, for any reason more than institutional inertia?

Your Board’s choice … please let me know your thoughts and experience.

If you’re reading this post on LinkedIn and want to follow my blog, you can do so at my site chairingtheboard.com

Risk – the forgotten axis

Almost every week another building, usually in Wellington, is evacuated because it’s deemed ‘Earthquake Prone’ and either covered in plastic sheeting or left to rot, while the hapless owners consider how they’ll afford the repairs and strengthening that the engineers have mandated. This week for a change it was the turn of the South Island’s largest high school Burnside High in Christchurch.

The Wellington City Council’s 2027 deadline for remediation is approaching fast and parts of our city resemble a rotting ghost town. Meanwhile, the Council continues pouring tens of millions of dollars into rebuilding the Town Hall that has been closed for a decade. The cumulative cost of all the required repairs runs into billions. There’s even a suggestion that the Council may demolish one of the city’s remaining quality venues, the iconic Michael Fowler Centre (MFC), in preference to yet more costly repairs.

All for what? The answer’s simple, you say: “People could die.”

Yes, of course they could, if a massive earthquake struck at exactly one of the few times each year when the MFC is full.

I do not subscribe to conspiracy theories, and I don’t believe there’s a deliberate co-ordinated strategy to impose this huge financial burden, not to mention mental stress, on property owners.

However, I do see an unfortunate alignment of interests:

  1. If an engineer is asked to inspect a building for structural integrity, professional pride must almost dictate that they find something. Which 10, 20 or 50 year old structure doesn’t have some fault, or design aspect that doesn’t meet the latest building standard?
  2. The well-intentioned City Council, acting on this advice from the engineer, can act with concern for people’s safety by telling them they mustn’t enter, while – better still for the City Managers – they force the cost on to the building owner, in other words, spending other people’s money.
  3. Thirdly, which builder, the beneficiary of this endless flow of welcome repair and rebuild business will step out of line to say the work isn’t needed?

Everyone concerned, except the blighted landlord, is incentivised to perpetuate the cycle.

Let’s look at a few other relevant facts.

  1. How many people have died in earthquakes in New Zealand since we started keeping nationwide records, about 200 years ago? No, not thousands – about 500 in total – the vast majority in only two events, the 1931 Hawkes Bay earthquake, and the 2011 Christchurch earthquake, 13 years ago. In the latter, which is seared on our memories, almost two thirds of the 190 victims died in the unfit-for-purpose CTV building, which, by all accounts, had never been properly designed or adequately inspected, and pan-caked dramatically.
  2. In comparison to this tally, fewer than 2.5 deaths per year on average, every year about 700 people decide tragically to end their own lives, while more than 300 die on our roads. The big difference between earthquakes and these heartbreaking events is that the latter usually take only one or two lives at a time, seldom becoming newsworthy, but no less devastating for the individuals and families involved.

It’s easy to talk about the possible consequence, or impact, of a dramatic earthquake – similarly to how people think about the possibility of a catastrophic Airbus crash and the loss of hundreds of lives.

What we often ignore is the other ‘axis’ of risk – the likelihood or probability of the event. On most days, even those airlines with the world’s worst safety records offload as many passengers safely at their destinations as they’ve welcomed at the start of their flights. (IATA’s 2022 report on passenger fatalities calculated that on average you’d need to take a flight every day for 25,214 years to experience a 100% fatal accident.)

Yet some people are still terrified of flying.

Isn’t it time we started to think of seismic risk in the same way:

  • Severity? Yes, potentially very high;
  • Probability? Well, 200 years of experience should be evidence enough.

New Zealand’s very strict building standards are designed to save lives, not property, and they’ve shown time and again that they do that. Perhaps it’s time to press ‘Pause’ on ‘Earthquake Prone’ and take a rational look at the real risks.

Then we could consider how many more lives could be saved by some rational spending decisions, and stimulate investment in this nation’s future, rather than continually patching up the past.

And, if I’m wrong, you can dig me out of the rubble and say, ‘Told you so.’

Three things they don’t teach you at ‘Board Boot Camp’

Nobody’s born a director. We don’t grow into being a governor, the way we do with walking, talking, parenting and even, to some degree, making a success of a job. All of these are essentially skills we learn as individuals.

Becoming an effective director requires a range of technical, social and communication skills, where we learn to contribute as one of a group, rather than with individual authority.

When a new member joins your board, you want them to contribute as soon as possible. This is as true for a small for-purpose board as for a large, complex corporate enterprise. They need to understand, at least, their role and legal responsibilities as directors, the organisation they’re joining and the industry you operate in.

Over the years, though, I’ve realised that a few things – ways we approach the role – aren’t typically taught, but can make a huge difference to how well a director contributes and how effectively your board functions.

  1. From I to We
    • Governance differs from management in one vital respect: when you’re a member of a board, you do almost nothing as an individual, and everything as a collective. New board members are often surprised – sometimes even disillusioned – to discover that they have no power as individuals to make decisions for the organisation, to impose their own agenda or to instruct management. Working collectively, however, the board has all the powers it needs to do these things.
    • This may also have something to do with why the best CEOs don’t always transition to being the best directors or board chairs. After all, they’ve been used to exercising individual responsibility, often as the boss, for much of their career.
  2. From ‘What’ to ‘So What’ and ‘What If’
    • For many board, too much of our briefing pack typically comprise unprocessed data, granular financial tables and a level of detail that sucks us into the operational weeds: the more detail management provides, the more directors feel invited to dig one level deeper.
    • What we need is less ‘what’ and more ‘so, what’ and ‘what if …’. In other words, we need more analysis that tells us the implications rather than simply the facts: for example, what does this information mean for our strategy and our risks? This is where the board’s main focus should be, rather than spending more valuable time looking in depth at last month’s management reports.
    • The important follow up to these first two questions is ‘what next’: what should we do about it? The result of getting this right will be a board engaged in building the future organisation, rather than focusing on the present and the past – with board papers to match. After all, the future is the only place where we can add value and change things.
  3. From Cognitive Diversity to Collective Responsibility
    • The third item, that’s seldom highlighted, is the mind-shift that needs to occur at the moment we make a decision. Up to this point, we typically seek out a range of views, ‘cognitive diversity’ or different ways of thinking about a problem, with the aim of reaching the best consensus solution. After the debate, though, and from the moment the board decides an issue, all board members need to accept their collective responsibility – whether or not they personally have agreed with the decision.
    • Breaching this fundamental principle damages any board’s cohesion and credibilty;  for example, letting it be known that one didn’t agree, or undermining or trying to relitigate the decision at your next board meeting.
    • If you disagree strongly enough with the board’s decision, you have two choices: you can ask that the minutes record your dissenting view – and then get over it. However, if you really can’t accept or get over it – perhaps you see a legal, ethical or reputation risk that your colleagues don’t – then your only real option is to think about whether you should continue on that board, or whether to step away. It’s a big step, and not one to take lightly, but you always need to keep that option up your sleeve for such a moment.

On its own, each of these may seem a small point. Looking back, though, how I wish that some wiser, more experienced director had opened my eyes to them far earlier.

Finally today, a fourth point for any new board member (and some not so new):

  • Remember, it’s quality of your questions, not the length of your lectures, that will make the difference in the boardroom.

Before the main course – 

Do you recognise this board? Directors arrive shortly before the scheduled start; you take your places, open your board packs and work your way through the agenda, item by item; as the chair closes the meeting, you shut your pack, gather your iPad and phone, and head to the taxi. Other than exchanging a few pleasantries when you take a break for coffee, you barely make eye contact with the other directors, let alone speak to them individually.

Perhaps you’ve had some good discussion and made some good decisions.

Consider, though,

  • Have you reached a real consensus on the most difficult items of the day, or did some directors simply give up or feel unable to have their say?
  • Do you know what your colleague really thinks – especially the one you often don’t agree with?
  • In fact, how well do you know your fellow board members at all?

Sadly, I’ve had a few experiences like this, where the board came together only for our meetings and the occasional strategy session, but never spent time together getting to know what makes each other tick. It may seem counter-intuitive, but the better you know someone, the more comfortable you can be in having a tough conversation or debate with them, confident that your personal relationship can survive what might be a challenging discussion. If I don’t know someone reasonably well, I’ll be more careful about what I say, in order not to offend.

Over my time on boards, I’ve become a strong supporter of boards coming together outside their formal sessions, taking some time to know and understand each other. One of the easiest and most effective ways to do this is the board dinner the evening before your meeting.

This isn’t simply a social get-together at an expensive restaurant, on the company’s dollar. Over the years, I’ve found it’s of greatest value when we put some structure around it.

  1. First, like board-only time on board day, we don’t use this time to make decisions that belong in the board meeting: it’s not a properly convened board meeting, but it does give us the chance to discuss more broadly what we need to address the next day – without the time constraints we often feel in the formal meeting.
  2. I like to start the evening with a chance to catch up and relax with each other, perhaps getting to know a new director or catching up with someone I haven’t spoken to for a while. When we sit down, I remember some advice I received years ago: sit next to the person you get on with the least, or whom you disagree with the most.
    • Note for my current board colleagues: please don’t take this too literally the next time I’m sitting beside you!
    • You can also take it too far, of course, like one director who took this advice to heart, went straight to the seat next to me, turned face on and opened, ‘So, Richard, why are you always wrong?’
  3. One of the best board dinner formats I’ve experienced was where our board chair would open the dinner with a short welcome, outlining the three or four things that she thought we needed to talk through before tomorrow. In this safe and informal surrounding, we can explore complex matters more widely and debate differing views more patiently than we might if we were heading straight to our decision. This also gives us the chance to sleep on the varying perspectives, often resulting in greater clarity and a better decision at the meeting the following morning.

As for confidentiality or exposing ourselves to accusations of big spending for our own benefit, one board I served on opted for a relatively basic catered meal delivered for us in the company boardroom. This had the dual benefit that we weren’t troubled by confidentiality concerns, and, even with a reasonable bottle of wine, was significantly cheaper than a moderately good restaurant.

Who should be at these dinners? I don’t like hard and fast rules, but I think that a regular cycle has some merit:

  • One evening, perhaps it’s only the board members – after all they don’t get many chances to meet informally on their own.
  • Before the following board meeting, you could include the chief executive, who also gets few informal opportunities to meet with his or her collective employer (the board).
  • And then a dinner where it’s the board, the CEO and the senior leadership team together: this can be an excellent chance for each of us to learn more about one another and to build a sense of shared purpose.

All of these, of course, are simply suggestions. I’ve found they work on different boards and I have no doubt that the extra time and cost invested are repaid many times over in a shared sense of purpose, greater understanding of our more complex issues and, usually, an increased passion for the cause.

How ever you decide to do it, the main purpose is to understand one another better and ultimately to make higher quality decisions, based on open dialogue in a trusting and constructive board meeting.

You may have a different way of achieving this. Let me know your thoughts.

If you’re reading this post on LinkedIn and want to follow my blog, you can do so at my site chairingtheboard.com

The shift we’ve been expecting in Air New Zealand’s strategy?

Has Air New Zealand’s market strategy changed – or is it simply now more obvious?

I’ll start by saying that I have been a relatively frequent, usually satisfied, flyer with Air New Zealand for a long time (my Frequent Flyer number has five digits and I’ve accumulated 14 ‘banked years’ of membership).

In the last three years, every airline in the world has faced challenging headwinds and has had to make tough choices. A couple of stories about our national airline in the last fortnight suggest that they’ve now made a clear decision about their broad market positioning.

When I was younger, business schools taught that to be successful and profitable you had to choose one of three over-arching strategies (you could potentially have a secondary strategy, but nobody could afford all three):

  • Product leadership – think Mercedes Benz;
  • Customer intimacy – The Ritz Hotel in London, or Huka Lodge near Taupo;
  • Operational efficiency – Toyota, or WalMart (hold that thought).

The theory was that the first two allow you to make your margin through premium pricing: customers are likely to pay more if they believe they’re buying the best product or premium service. The third strategy generates your margin at the other end, minimising your cost of production.

In recent months, Air New Zealand has talked about ‘best in class’ cabins that they’re developing for their very long haul routes. This, with relentless advertising promoting smiling cabin crew, implies at least one of the former strategies. 

While the airline’s welcoming Lounge hosts and most cabin staff play a large part in keeping us loyal, two recent incidents make me sceptical about the real strategy:

  • Since we started flying again last year, we’ve read stories of countless passengers frustrated by their inability to contact the airline when they needed to change their flight – often after a cancellation or delay. A further story this week tells of a customer who took two full days to get through. Perhaps other airlines are even worse, but I’ve seen little to indicate that Air New Zealand has ever made this a priority: when did you last try to call the airline – even on their priority line – without hearing the message that ‘we’re currently experiencing greater than usual demand’. This does beg another question: what constitutes ‘usual demand’ … pre-1990 levels?
  • Secondly, two weeks ago Air New Zealand may have set an unenviable record for the world’s ‘longest flight to nowhere’. Its flagship service from Auckland to New York, one of the longest non-stop flights in the world, was eight hours in, two thirds of the way across the Pacific, when Terminal 1 at JFK International Airport was shut down because of an electrical fire, and all inbound flights were told to go elsewhere. 

Many flights already en route diverted to other US airports, Newark, Washington DC, etc. From there, their passengers would have had a relatively short onward connection. Air New Zealand returned to its starting point – about as far geographically as you can be from New York. I even understand, from those who have listened to the in-flight radio exchanges, that the Air New Zealand flight crew pleaded with management to be allowed to divert to an alternative US airport, for the sake of their passengers. (You can hear more detail about this incident on my favourite weekly aviation podcast, AvTalk.)

By my estimate, two-thirds of the way across the Pacific puts the flight quite close to Hawaii when it turned back. If I couldn’t go all the way to New York, a day or two in Honolulu before completing my trip on, say, United Airlines, a Star Alliance partner of Air New Zealand, would seem a reasonable option.

In contrast, returning to my start point, after 17 hours or more on board, with the prospect of repeating the whole thing tomorrow, for a total of nearly 35 hours in the air, must feel close to physical and mental torture. Perhaps some people have a higher pain threshold than mine.

The explanation I’ve heard is that any other diversion would have put the aircraft and crew in the wrong place, creating further delays. Really? Was that aircraft, and its crew, so vital to the next day’s flights? How long would it have taken Air New Zealand to fly a fresh crew up to Honolulu and bring the empty aircraft back to Auckland … or on to New York to pick-up the customers who’d already booked for its return the next day?

Even if the explanation is valid, Air New Zealand clearly ranked its own operational requirements above the convenience, comfort – and wellbeing – of its customers. 

Some years ago, the then-CEO of Air New Zealand, renowned for his unwavering focus on customer service, observed: ‘At Air New Zealand, we don’t fly aeroplanes … we fly people.’ After last week’s flight to nowhere, the aeroplane may have been in the right place. The people clearly weren’t. 

Which brings me back to my start: Air New Zealand’s CEO was, as we know, formerly Chief Executive Officer of WalMart US. Perhaps the only surprise is that the airline’s strategy has taken so long to become clear.

(If you’re reading this post on LinkedIn or Facebook, you can follow my blog at chairingtheboard.com)

No such thing as ‘Invisible Leadership’

I usually hesitate to comment on current events, because experience shows that matters are seldom as they appear in the fog of a fast-moving situation.

This weekend’s catastrophic storm event in Auckland, however, speaks for itself and calls for an immediate reaction.

First, I find it ironic that a Mayor, who was elected on a platform of getting rid of bureaucracy and red tape, should blame exactly the same bureaucracy and process for his delay in declaring a state of emergency on Friday night. Even from a distance of 600km, any responsible decision maker could have seen much earlier in the evening that this storm was overwhelming and beyond the resources of any business-as-usual response.

Today, Monday, we hear (RNZ Morning Report) that the Mayor is too busy with ‘back-to-back briefings’ to speak with the media. This looks like a leader hiding from his responsibility to his community of 1.8 million Aucklanders.

Many thousands of people have suffered enormous loss and trauma – broken families, lost houses, destroyed businesses – and have no idea what the next few days or months will bring, or how they might hope to recover. They are looking to their leaders for any reassurance, encouragement, comfort or empathy they can glean.

It’s telling that the new Deputy Prime Minister is scheduled to provide an update later today, rather than the elected leader of the community.

Compare and contrast: most readers of this post will be old enough to remember the immediate aftermath of the 2011 Christchurch earthquake. Bob Parker, then Mayor, didn’t lock himself in briefings all day. He was visible constantly, offering support, comfort and confidence that he, the City Council and emergency services were doing all they could in the face of overwhelming damage and loss. His presence was so constant that it was rumoured that he slept in his hi-vis jacket.

A leader can choose what briefings to receive and how long they need to be. A leader then needs to lead. Where I was trained, we were taught that there’s no such thing as invisible leadership. 

To Mayor Brown, my message today is, ‘Get out there and be the leader Auckland needs.’

Four times twice as much: how the Chair’s job has grown.

The latest edition of the Australian Company Director magazine quotes a senior board chair describing how the role has evolved in recent years:

  • ‘Where once the rule of thumb was that the chair did three times the work of a non-executive director (NED), they now do four times the work of NEDs, who in turn are working twice as hard as they used to.’

For the mathematically challenged, I think she’s saying that a board chair today has about eight times the typical workload an NED had, only a few years ago. 

People unfamiliar with the role (to some extent, anyone who hasn’t been a chair) might ask what requires such a commitment. After all, they attend the same number of board meetings as all other directors, don’t they?

Over the last few years, I’ve developed a framework that I hope de-mystifies the role, outlines its breadth and demonstrates how critical it is to the success of both board and organisation.

My Five Roles of the Board Chair have resulted in a vaguely Scottish-sounding acronym –  with a guttural absence of vowels – MCBSD (work in progress … it doesn’t quite roll off the tongue yet):

M – The first function, the one that everyone knows about, is Meetings: the Chair’s most obvious job is to plan and lead powerful Board meetings – meetings at which the Board makes the decisions that only the Board can make, where we tackle the difficult issues, where differing views are sought and tested, and when the Board and CEO agree at the end that the organisation is better off than when we sat down, when we know we’ve made the boat go faster. 

Achieving this in our limited time together takes careful agenda planning and ensuring that we receive high quality briefing material in plenty of time. During the meeting, the Chair must remain alert to who’s speaking; who still needs to (and sometimes who needs not to); fresh ideas that might be emerging; what we still need to address; what we might be missing; and, finally, when we’re ready to make a decision. 

C – The second job, that can take a lot of time, is managing the Board’s relationship with your only direct report, the Chief Executive. At its best, this can be one of the most satisfying parts of the role – developing and nurturing a strong working relationship based on trust, openness and respect (in both directions). The paradox is that it must not evolve into personal friendship: as Chair, you act on behalf of the full Board, not on your own account, and you need to keep that professional distance. 

In contrast, if the relationship breaks down, or the Board begins to lose confidence in their CEO, managing this relationship may become challenging, time-consuming and immensely frustrating. If the relationship breaks down completely, one of you probably has to go: I can’t remember a broken relationship ever being fully rebuilt, and if the Chair and CEO can’t work together the organisation will suffer.

B – One of your biggest responsibilities as leader is to build and develop your Board. Some Chairs have the luxury of being able to select, or at least nominate, who joins you. In these cases you must resist the temptation to people who look and think like you, which may make for a more superficially collegial board. Instead, you need to think hard about the attributes that will add the greatest value, offer the best oversight and deepest insights, and find people who think differently (see my earlier post on Cognitive Diversity), so that the whole Board is greater than the sum of a few cosily-connected parts.

Where directors are appointed or elected by others (usually shareholders or members), I believe that the Board and Chair have a right – even a duty – to let them know what skills, experience and linkages might add the greatest value to the Board. They can choose to accept that advice, or not. 

By whichever route your fellow directors arrive, as Chair you need to make the most of your team. You need to support their professional development as individuals and as a team; to ensure regular evaluation of board and individual performance; and to establish an appropriate committee structure with the best members on each; as well as planning for and managing the next round of succession. 

S – Gone are the days of the invisible Board, or the Chair who appeared only for the AGM and set-piece media announcements. Today, our shareholders and stakeholders, external and internal, expect to know us, to hear from us and to be able to contact us if needed. 

As Chair, I find huge value in getting to know the organisation on the ground, and in hearing from the people working in it. This is not about getting in the way of management – it’s vital that we don’t – but more about understanding what makes the organisation tick, and at the same time repeating the Board’s key messages, showing that we’re all heading in the same direction, and helping people to understand the valuable part each of them can play.

If you ‘dig the well before you need the water’, to build the trust and confidence of your shareholders and stakeholders, you’ll find it easier to have the tougher conversations when things aren’t going to plan or you see clouds on the horizon.

D – Finally, one important aspect of the job that I’ve seen several Chairs forget, especially when they’re new in the role: besides balancing your time with the tasks I’ve mentioned above, remember that you’re also one of the directors – not simply a facilitator or coach. You need to make sure you don’t dominate or cut discussions off too early, but you’re probably better informed than your colleagues, you still have a valid perspective, the right to ask questions, and even to admit you don’t understand.

Yes, ‘four times twice as much’ feels about right. It’s a big job. But if you want to make a real difference in your governance role, there’s no greater satisfaction than leading your Board through challenging times and seeing the value that you and your colleagues have added.

As someone said to me recently, ‘Your goal isn’t to live forever … it’s to build something that will.’

Good luck! And, if you need to talk about this, you know where to find me. 

______________

If you’re reading this post on LinkedIn and want to follow my blog, you can do so at my site chairingtheboard.com

Ten minutes that will transform your (Zoom) board meetings

I’d guess that most of us have held more board meetings virtually than in person over the last 18 months. Remote meetings, still a rarity two years ago, are business as usual and here to stay.

We’re learning how to make the most of them: 

  • To interpret non-verbal signals (aka body language) from only our colleagues’ faces; 
  • To stop people talking over each other, most of the time;
  • And to manage the unusual constraint that everything we say and every facial gesture is seen by everyone else in the meeting. There’s no ‘one-to-one’ (outside the ‘Chat’ box).

But there’s one aspect of living on Zoom[1] where many of us seem to have learned nothing in the last 18 months – our own welfare. Who hasn’t been stuck for hours, barely moving, staring at their board colleagues through lengthy meetings, where the breaks are dictated by the strength of the chair’s bladder?

We all know about people’s limited attention spans and the benefits of regular physical movement. Yet, here we are, ignoring both, in the supposed interests of getting through our meeting. 

In a physical boardroom, we have the luxury of being able to move in our chairs, or even to move our chairs; we can look from side to side directly at our colleagues around the table. Some boards even provide a side table with refreshments through the meeting, so that board members can stand up and move around, without missing any of the discussion. 

None of those luxuries is available on Zoom. Like a well-trained gun-dog, a hungry leopard, or a cat that’s spotted a mouse, we sit motionless – except that we’re staring at a screen 60 centimetres in front of us and often well below eye level. I don’t know the potential long-term harm or risks of this behaviour for humans, but I do know at the very least that it’s hard to stay fully focused on the discussion for hours on end. 

Here’s my simple but powerful solution: every hour, call a ten-minute break – not five, but ten. Ten minutes gives people enough time to stand up, attend to their physical needs and make a cup of coffee or respond to that urgent email request. In comparison, a five-minute break barely allows time to do one or the other.

Since I began this approach, taking regular and longer breaks, my meetings have become livelier and more engaged, and it’s a tempo you can sustain for pretty much as long as you need. And, once they’ve tried it, nobody has complained (to me anyway) that we’re wasting time.

A few little tips to help even further:

  1. Let people know at the start of the meeting that this is what they can expect. 
  2. When you break, tell people exactly what time you’ll be starting again.
  3. And please, when you take that break, remember to turn off your camera and microphone … need I say more?

Just try it. Then let me know your experience.

______________

If you’re reading this post on LinkedIn and want to follow my blog, you can do so at my site chairingtheboard.com

[1] Zoom, or any other video-conferencing app

The three levels of medalling, in board diversity

Over that inspiring fortnight of distraction, the Tokyo Olympics, two new verbs have joined the mainstream, as in ‘I can’t believe we’ve medalled … we were only aiming to podium at the next Games.’ 

As those verbs have entrenched themselves in the sports lexicon, so ‘diversity’ has become possibly the most discussed, most abused and most poorly understood term in board vocabulary.

Let’s look at diversity in the language of the last few weeks:

  1. Bronze – demographic diversity

Much of what we read about diversity addresses only one dimension, gender: ‘How many women on your board?’ To be fair, the discussion can extend to other demographic measures, as in ethnicity, age or geography. 

Even here, I see this often as a lazy substitute for real diversity. Looking different or coming from another part of the country is no guarantee that you’ll add a different perspective to our board discussions. Indeed, researchers who published a Harvard study in 2017 ran an experiment more than 100 times, and concluded that there was no correlation between demographic diversity and problem solving performance. The ability to solve complex problems, surely, is what we’re aiming for.

Then again, when filling a board position, we want to select from as broad a field as possible. So this type of diversity is still an essential component – for the purpose of inclusiveness and equality of opportunity. We also need to ensure we’re not excluding, or unconsciously discriminating against, particular sectors of our population, as can often result from ‘hiring in the mirror,’ unwittingly preferring people who look or sound like us. 

Perhaps, then, demographic diversity is more like the qualifying rounds than gaining a medal: without it you’re not even in the game. But it’s far from enough.

2. Silver – skills, experience and linkages

This next category takes us in the right direction. Having a range of skills and experience at least helps us to ask questions from different angles. Many companies elect their entire board from a similar catchment. For example, an engineering firm may have a range of demographics among its partners – young, old, men and women, but often they’ve all been trained to think the same way: as engineers. Similarly, with the boards of many organisations, such as co-ops, the board may be drawn exclusively from members – farmers, retailers, cab drivers – so again they may not have much breadth of experience or skills. 

Another valuable attribute of a well-structured board is directors who bring a wide range of networks, or linkages. Often, in my experience, knowing which influential stakeholder to talk to, or how to tap into a key stakeholder’s thinking, is hugely valuable.

These are areas where independent board members can help to fill the gaps. It’s not about the demographics, but the skills, experience and linkages we need at the board table. It’s an area where I’ve had some wonderful, and challenging, career experiences: the only non-engineer on a board of structural engineers, and the first independent director and only non-farmer on an infant formula co-op’s board[1], to mention two. As a result, I’ve had the luxury over those years of asking the ‘dumb’ question, such as ‘Why do we do it this way?’ – sometimes the question other directors really wanted to ask, but were too embarrassed, because they thought they should know the answer.

3. Gold – ‘cognitive diversity’

To get what we’re really after, the best group to solve complex problems together, we need what the authors of the Harvard article call ‘cognitive diversity’. I think of this as different ways of thinking about problems. The researchers divide this into two areas:

  1. Knowledge processing: do our directors apply their existing knowledge to a problem, or prefer to gain new knowledge?
  2. Perspective: do they apply their own expertise, or build on the expertise and thoughts of others?

Not surprisingly, boards with the highest levels of ‘cognitive diversity’ scored best at solving complex problems – regardless of whether they were socially, ethnically and gender diverse, or all young Hispanic women … or even pale, middle-aged and male. 

The answer seems obvious: appoint cognitively diverse members to your board. The reality is more difficult: how can you tell? You can’t see cognitive diversity; also, because people generally like to fit in, they tend to be cautious about standing out as different, especially when we first meet them, as in an interview. 

Here’s the challenge for our board chairs: we often talk about authenticity in our own leadership. Perhaps even more important is to celebrate the differences, to encourage everyone at the board table to be themselves and, like the late Mr Sinatra, to do it their way. 

When we genuinely bring together a range of problem-solving styles, where people are comfortable expressing different views resulting from different thinking styles, challenging long-held assumptions, and asking questions that make us all think … then perhaps we can stand at the top of that diversity podium. 

And, as chairs, we’ll be able to claim our own ‘PB’!

[1] I won’t forget my introduction to the Dairy Goat Co-op. At the AGM where I’d been nominated, one of our farmers asked me, ‘So, Mr Westlake, what do you know about goat farming?’ We both knew the answer. 

Perhaps, I said, my total lack of knowledge was the most valuable thing I brought: the other six directors knew everything they needed to. I hoped, though, that I’d bring some other skills and experience from my non-farming, background. 

The other shareholders seemed to agree and elected me as the company’s first independent director.

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If you’re reading this post on LinkedIn and want to follow my blog, you can do so at my site chairingtheboard.com

When your board member is the subject expert: three hidden traps

How often do we hear boards discussing the type of skills they’d like to attract … ‘Wouldn’t it be great if we had an engineer/micro-biologist/blockchain expert on the board?’

I’m fully in favour of making sure our boards have people with the right skills and experience for the business. We’ve all heard of corporate train-wrecks where their absence has been a factor: insurance companies with no insurance or risk experience; building companies with no construction experience; even banks with no bankers (as we found after the 2008-2009 GFC). You need at least some of your board members to have experience in the industry, so the board knows what it needs to ask – in the cliché of some years ago, to move from the unknown unknowns to the known unknowns – and, crucially, to sense whether the answers from management pass the ‘sniff test.’

If I were on the board of an insurance company, for example, I could ask how much reinsurance cover we should hold; but, without experience in the insurance industry, I wouldn’t know whether the answer I received was reasonable. So I’d want to be sure someone else at the table had that experience.

All very reasonable. But, as always, we get unintended consequences. If we have a board with several experts in specific disciplines, we need to watch out for how much we’re really behaving as a committee of individual experts, compared with how much we’re genuinely working collectively as a board of directors.

Secondly, if we have the recognised subject authority around our table, and they offer their opinion (especially when it comes as a statement, rather than a question), who dares to disagree or challenge? And, if we do, does the expert then become frustrated? We need to remember that, as directors, we all have a duty to review and test the information we receive.

This is all manageable, as long as we stay aware of our role. 

But what about those organisations, often NGOs, smaller and resource-constrained, which attract heavy-hitters to the board who are better qualified and connected than the managers employed in the organisation? To take advantage of this – the experienced finance, marketing or fundraising board member – we may engage them as cheap (often free) consultants, or set up a committee, in order to strengthen the operational function. 

Here’s the trap: your expert or specialist is a board member, so the committee we establish reports to the board … right? Wrong – for two reasons:

  1. If the committee reports direct to the board, who’s really running the business? How can your CEO influence the committee’s activity if it reports direct to the board, and what happens if s/he doesn’t agree with the committee’s recommendation?
  2. If the committee’s recommendations turn out to be flawed, and it all goes wrong, who do you hold accountable? You can’t penalise your CEO, who wasn’t responsible for it … and who governs the governors?

I like to draw the distinction between 

  • Genuine board committees (such as risk, audit, people & culture): these consist entirely of board members and provide recommendations for the board’s decision; and
  • Those committees we set up mainly to strengthen management capability: they contain one or more board members but probably also members of the management team. 

These ‘management-support’ committees need to be accountable to the chief executive, not the board, so that s/he can decide whether to support or implement its recommendations – as with any other management proposal – and in turn can take responsibility for its success or failure. 

This of course requires board members to accept that, when they’re acting in this way, they’re not doing so as board members, but as subject matter specialist advising management. Your board member needs the flexibility (and humility) to accept that it’s up to the CEO whether or not to accept their advice.

However, a cautionary tale: I once chaired a board in the performing arts sector (an industry, our CEO once described to me, of ‘nuts, sluts and perverts’). Our board included several passionate, larger-than-life personalities, some of whom were also expert in fund-raising and marketing (and, as far as I know, none of the above ‘attributes’). We established a couple of committees to support our over-worked and under-resourced management team. One of those committees worked as planned.

On the other, however, one board member simply couldn’t accept that she wasn’t the boss: “But I’m a board member …” 

I thought we’d be able to manage this at the board meeting. Instead, we found that the board member, with whom the CEO had disagreed, had become our “hammer” (“When you’re a hammer, everything looks like a nail.”). Despite our/my best efforts, we couldn’t get her to modify her behaviour. In the end, we didn’t simply take her off the committee – she had to leave the board. So, even if you get it right in theory, it doesn’t always work as planned.

As I say, having the subject matter expert on your board can be a mixed blessing. 

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If you’re reading this post on LinkedIn and want to follow my blog, you can do so at my site chairingtheboard.com