On the dangers of specialist directors
It’s all-important to be aware of the obvious danger when a board recruits a technical specialist, whether it’s a digital technology specialist, a computing technology specialist, an audit specialist, or a lawyer for that matter.
That is the risk that other directors will tend to defer to the expert director to fully understand critical company risks.
It’s really incumbent on all directors to understand those risks and to have a culture around the board table that creates an opening to ask probing questions, even if they’re colleagues around the board table, as well as management. This can be difficult if an acknowledged expert on the board does not conduct themselves at board meetings in an open and collaborative way in relation to their area of expertise.
On independence and other qualities of a good director
[Independence] is, of course, a necessary but not sufficient qualification for being a good director. What is also needed, of course as we all know, is a range of qualities and qualifications, which in my mind include the following:
- an ability to apply skills intelligently and diligently in the interests of the company;
- an ability to bring a savvy business judgment to the decisions of the board;
- a willingness to engage in, what I call, robust collegiality around the board table – that is, participating constructively in a debate that probes and challenges management’s recommendations but in a constructive way;
- being constantly curious about the business and the business environment in which it operates;
- and lastly, having courage and integrity to stand up for high values and good governance.
It is essential that directors try to smell the smoke and do something about it if they smell smoke. They should ask the right questions, review the remuneration incentives, for example, to ensure they aren’t at odds with the values which the company espouses. They should understand how complaints are handled and indeed how many complaints are received and what are their nature.
Importantly, get comfort on what I believe is a critically important indicator of corporate culture, and that is that bad news travels quickly to the top of the organisation. When it doesn’t, that often speaks of an organisation with a poor culture.
On forming a risk committee
Whether or not you have a separate risk committee or assign these matters to another committee, always remember that except for explicit decision-making authority that might be set out in that committee’s charter, the proper role for the committee is to assist the board as a whole to assume its responsibilities for all of these risk management matters and to do so by reviewing and making policy recommendations to the full board, which the full board must ultimately be accountable for.
It is now widely understood, including by people like Warren Buffett, that cognitive diversity – having different ways of thinking and different frames of reference arising from a diversity of business and life experience – is valuable to good board decision-making. As Warren Buffett says, diverse boards make better decisions. Having said that, he is also quick to say that above all, give me business-savvy directors with courage and integrity. These things of course aren’t mutually exclusive.
For more from this year’s Essential Director Update, download the 2016 handbook.