Getting an appropriate mix of skills, knowledge and experience
To be effective a board needs the right group of people, with an appropriate mix of skills, knowledge and experience (e.g. professional backgrounds, industry experience, philanthropic support) that fits with the organisation’s objectives and strategic goals. This should be considered not only when new appointments are being contemplated or made, but in the context of regular board evaluations (see below).
Boards which have an appropriate and diverse mix of skills and experience will be less likely to engage in “group think” or to have “blind spots” and they will be better equipped to deliver value and respond to challenges that may arise. The issue becomes, what is the optimal level of “diversity” for a board? This is likely to change from organisation to organisation. Some sets of new skills and experience may add little incremental benefit; others may be of great value. Boards should carefully consider what form and level of diversity is appropriate for their organisation’s circumstances. What is clear is that boards should assemble a group of directors that together comprise a range of skills and experience that will best assist the organisation achieving its goals. In doing this there should be consideration given to the former level of diversity that might be appropriate for an organisation’s circumstances.
There is often a delicate balance when making board appointments between looking for individuals who will help promote constructive discussion and debate (e.g. to avoid problems associated with group think – potentially an issue with NFPs because they are run by passionate people aligned around a particular cause), but without losing the important board cohesion or collegiate approach to board decision-making. The absence of a collegiate approach to decision-making can lead to highly dysfunctional outcomes, including decision paralysis. As such, personal qualities and behavioural skills are necessary considerations.
A skills matrix
Larger organisations sometimes use a “skills matrix” to help check whether the board has the right balance of people on it, and to assist with selecting new board members. To ensure they possess the right personal qualities, “passion for the cause” and the minimum skills required, such as financial literacy, organisations of scale look at selecting directors who bring skills including:
- Strategic expertise – the ability to guide and review strategy through constructive questioning and suggestion.
- Accounting and finance – the ability to read and comprehend the NFP’s accounts, financial material presented to the board (any financial reporting requirement) and some understanding of the organisation’s financial drivers/funding and business model.
- Legal – the board’s responsibility involves overseeing compliance with numerous laws as well as understanding an individual director’s legal duties and responsibilities.
- Managing risk – experience in managing areas of major risk to the organisation.
- Managing people and achieving change.
- Experience with dynamics of fundraising.
- Specific NFP/industry knowledge – passion for the cause, experience in similar organisations, sectors or industries.
The need for other skills, knowledge and experience will depend on the purpose, size and type of NFP, how and where it operates and its activities. The board’s needs will alter as an organisation matures and enters a new stage in its lifecycle. When defining needs, consider where the organisation is heading as well as where it is now.
For smaller NFPs where a formal skills matrix process may be too much, it would still be valuable for directors to think about and agree on the type of skills and personal qualities that will meet the NFP’s needs. A simple transparent approach for the selection, appointment and re-appointment of directors to the board helps promote confidence among stakeholders as well as an understanding of what is required for potential director candidates.
There is also a need for directors to be able to give sufficient time and effort to their board role, notwithstanding many NFP directors are not paid or receive negligible fees to cover expenses. The desired time commitment required of directors should be considered. The board should consider the number and nature of other directorships and commitments that a potential director has to ensure they can deliver the benefits of their commitment and skills and effectively fulfil their legal duties and responsibilities for the NFP.
Questions for consideration
- Is there a well-defined and transparent process for board recruitment, including nomination and selection (to the extent that the appointment of directors is within the control of the board)?
- Has consideration been given to how the board is composed (and/or refreshed), including the potential use of tools like a “skills and experience matrix” to ensure the board has directors with:
- Appropriate skills, capability and capacity, having regard to the organisation, its purpose, operations and its needs.
- Sufficient diversity of relevant experience and perspective.
- Are potential board members able to commit the time required for their role?
- Should the board have a nominations committee?
- Does the NFP have policies and procedures relating to the retirement or removal (e.g. circumstances in which this can occur) of board members?
The size of the board
The size of a board is a factor that can influence its effectiveness. The main point here is that bigger is not necessarily better.
The constitutions of NFPs often specify a maximum or actual board size. Some constitutions provide for relatively large boards (e.g. ten or twelve directors), commonly with the intention that the board is “representative” of its membership (e.g. geographical representation for federated structures), the community the NFP serves, etc. Those new to directorship may think that a large board offers the opportunity to add a wider array of skills and experience. However, there comes a point where the size of a board becomes unwieldy, difficult to control, and diminishes the board’s deliberation and decision-making effectiveness (e.g. speed of decision-making, ability to reach a consensus).
It may be sensible to begin with a relatively small board (for small NFPs, say perhaps four or five directors). As a general guide, the board should, on the one hand, be small enough to have high quality, active discussions, but on the other hand, big enough to provide the skills and experience necessary for the board to operate effectively. It is easier to build up the board than to reduce it once people and structures are in place. Over time, as gaps in the board’s knowledge, skills and experience become apparent, particularly as circumstances change, appropriate changes can be made to the board. Ideally this would occur as part of an established process of board assessment and renewal.
Questions for consideration
- Is the board of a size that is sufficient to enable it to have the necessary knowledge, skills and experience for the organisation, but small enough to enable effective discussion and decision-making?
- Have circumstances changed such that the current size of the board should be reassessed?
Terms of board appointment
Directors of NFPs are sometimes appointed for a term (e.g. three or four years), which may or may not be renewable. Often this will be stated in the NFP’s constitution.
As with board size, the optimal board term may well differ between NFPs and over time. If the term of board appointments is too short, this can detract from long-term thinking and board continuity. The longer the term, the more difficult it is likely to be for a board refresh. Normally some degree of flexibility is desirable (e.g. the possibility of a second term), perhaps in well-defined circumstances, in order to enable valuable contributors to continue on the board for a period. This need for flexibility is particularly relevant for NFPs as they often have specific challenges, including keeping great people and ‘representative’ boards. For example, it may have taken some time to find and select quality directors and while standard “board refresh” concepts suggest their “time is up”, the passion, knowledge and experience and time served by those directors has made them invaluable. Subject to the NFP’s constitution, some good contributors may serve terms that are longer than conventional periods.
Care should also be taken to help ensure that individual board terms are appropriately staggered, so that there is a continuity of appropriate knowledge, skills and experience on the board, as well as continuity on organisation and board-specific issues. This reduces the likelihood that multiple concurrent new appointments will impact adversely on the effectiveness of the board [see also, Principle 6].
Questions for consideration
- What is an appropriate term length in the organisation’s circumstances?
- Is there a need for some in-built flexibility to permit valuable contributors to continue on the board beyond the standard term? Are terms of board members staggered in such a way so as not to cause undue disruption to board and organisational activities upon resignation at term completion?
Maintaining a board succession plan
The high turnover on some NFP boards can be an issue for board effectiveness [see Principle 6] and makes it important the board has a well thought through and articulated strategy for its own renewal. It is common practice, for example, for member-based organisations to select some of their directors from those members who have demonstrated a commitment to the organisation’s purpose and leadership capability by participating as volunteers on committees.
Boards have to plan for orderly succession and renewal as well as being prepared for everything from sudden departure to sudden illness of a board member or chief executive officer. It is important to understand the disruption which can occur.
Succession planning enables an organisation to refresh its leaders in order to continue meeting its purpose. The aim is to have the right person able to fill the vacancy at the right time. The ongoing nature of this planning means that the board has the opportunity to manage its future needs.
Succession planning is closely connected with the processes for selection, appointment and appraisal of directors and executives. The ASX Corporate Governance Council advises that board renewal is critical to performance and that directors should be conscious of the duration of each director’s tenure in succession planning.
The chair and CEO
The chair occupies a pivotal role in determining the effectiveness of a board. The chair, amongst other things, serves as the primary interface between the board and the CEO, presides at board meetings and annual general meetings (where the latter occur), and would typically lead the recruitment of new directors (perhaps in conjunction with a Nominations or Governance Committee).
Attributes of a good board chair would include but not be limited to:
- Provides overall effective leadership to enhance the effectiveness of the board
- Has the confidence of the board
- Has a productive working relationship with the CEO
- Has a good understanding of the organisation’s purpose and operational challenges
- Has the skills to ensure the board works as a cohesive team
- Is an effective “conductor” of board meetings [see Principle 6]
A core part of a board’s activities involves appointing and supervising the performance of an appropriate CEO. Often the chair will serve as a sounding board for ideas or proposals considered by the CEO. Some circumstances may also necessitate the board terminating a CEO’s employment contract.
Questions for consideration
- Does the chair have demonstrated leadership qualities?
- Does the chair have the confidence of the board?
- Does the chair have the right balance between support and control in their relationship with the CEO?
- Does the chair have the respect of the CEO and management team?
- Has the chair and board agreed a protocol on how the CEO is to interact/interface with the board (taking into account roles and responsibilities have been clearly defined)?
- How effectively does the chair “conduct” board meetings?
Download the full Good Governance Principals and Guidelines for Not-for-Profit Organisations as a PDF.