Ensuring Board Chemistry and Skills
By Marilyn Seymann
With the onslaught of new regulations and the abundance of corporate misconduct sprinkling the news these past couple of years, even the most experienced and comfortable directors are questioning whether their boards are adequately equipped and accurately designed for success. For bank directors, this situation is often exaggerated since their companies – and their boards – have grown by acquisition over the years and thus the structuring of the board has not always been deliberate or strategic. Although in most of these situations there is no quick fix, I’d like to give you some ideas as to how to begin strategically assessing your board’s composition and dynamics.
Board composition considerations fall into two categories: diversity and the mix of director experiences and skills. An important goal for any bank board is that the composition of its members reflects the communities served by the bank. If this is done effectively, an additional benefit is that the board will more accurately reflect the employee base of the bank. Not only does a diverse board bring together different perspectives, but it also tends to enhance the bank’s community relationships, reputation and often its customer service. The number of women and minorities serving on corporate boards has been steadily increasing as corporations recognize the importance of, and the benefits from, bringing new and diverse perspectives into the boardroom.
To assess whether your board has the appropriate mix of skills and experience, begin by filling out a simple matrix such as the one depicted on page 23. You may find – particularly if your bank has grown by acquisition – that you have high degrees of skill duplication on your boards, but still have holes in the board’s skill base despite a large number of directors. The specific skills and experiences a board seeks may differ depending on the needs of the individual bank or bank holding company. For example, experience negotiating acquisitions is not necessary if acquisitions are not part of the bank’s current strategy. This matrix should be updated annually, both for the individual directors and for the skills required, to ensure that the skills represented are continually those that are the most relevant to the bank’s strategy.
In order to increase board diversity and ensure that a sufficient mix of skills and experience are present, boards are increasingly turning to non-traditional resources for director recruitment. Begin by looking within the communities that the bank serves – civic boards, nonprofit organizations and universities are all excellent places to begin a director search.
However, all of this said, ensuring that your board is sufficiently diverse and has enough boxes checked in the skills matrix is only half the battle – in fact, with many boards I see, that is the easy part! Equally, and in some cases more, important is something far less tangible: how your board interacts, communicates and works as a team. My colleagues and I use the terms “mechanics” and “organics” when assessing boards. Mechanics are primarily logistical issues – such as board size, committee composition, processes and organization. These issues can be assessed and changed fairly easily and they are often the subject of regulations because they are easy to see from outside the boardroom and easy to measure. The skills matrix is an exercise in mechanics. Organic issues, on the other hand, involve board dynamics and interactions. These issues, while frequently detected by insiders, are often not easily changed by the same people who create them.
For a board to be truly effective, it takes more than structuring it according to regulatory guidelines and industry best practices, and more than making sure all the necessary skills are represented and that there is an adequate level of diversity. It takes trust, respect and open communication. These are the biggest areas where I see problems on boards – and they can’t be solved by adding more skills or checking off the regulatory boxes. To assess your board’s organic issues, begin with the application of the classic high performance team model. This often yields more insight into the board’s effectiveness or lack thereof than any other exercise. The elements of a high performance team are:
• Shared commitment to common goals,
• Individual responsibility toward achieving the goals,
• Open communication and trust.
Unfortunately, there is no matrix to help you implement these traits – that’s why we call them organic. In a nutshell, much of what makes any group of people successful boils down to chemistry, and while you can’t always create chemistry, you can take steps to foster its development on its own. For a board, this means setting the stage for relationships of trust and respect. There should be no “outside coalitions,” criticisms should not be directed at individuals, and everyone should be encouraged to participate in lively dialogue. Second, respect the background, experience and skill that each director brings to the table. Solicit opinions from everyone, especially if it is known they have experience in the area under discussion. The last, and most key, piece is to conduct regular evaluations of the board’s process and communications. This will help you identify areas that need improvement on an ongoing basis.
I hope these ideas have helped you identify areas where your board could be improved. Of course, figuring out what needs to be done is only the first step, and implementing the changes often involves a substantial transition, a fair amount of time, and some difficult decisions. But few, if any, efforts are as worthwhile for your bank these days as ensuring your board’s effectiveness. Good luck!
This article first appeared in American Banker on May 16, 2003.