One of the key roles of the board is to establish the ‘tone
from the top’ in terms of culture and values. 
Having a board with a balance of differing backgrounds, skills, and
experience, not only role models diversity for the rest of the organisation,
but it will result in deeper and richer discussions and bring appropriate
expertise to as many of the challenges that it faces. 

Different perspectives also enable a board to identify all
opportunities and risks facing the organisation and it reduces the risks
associated with ‘group-think’.  To be
able to do this successfully though, the board’s composition must be right.
This is why, board refreshment has an important role when looking at excellence
in board governance today.

A stale board i.e., one that has long tenured board members
and not added new members for many years, has a very high-risk rate of becoming
complacent, where a lack of independence, new perspectives, and diversity could
pose significant risks in relation to long-term performance and effective
oversight of management (The UK Corporate Governance Code indicates that
Non-executive Directors (NEDs) lose their independence after nine years of
service on a board).

Yet, while most boards are aware of the need to diversify
and refresh their members, doing so can be difficult. NED vacancies do not
occur frequently, leaving either expansion of the board or waiting for someone
to retire or step down before adding someone new. In addition, attracting new
NEDs can be hard, particularly in affinity-based friendly societies where there
is often little or no compensation.

Understanding how, when, and why, to refresh your board

Many organisations are adopting tools to help them refresh
their boards. The most popular two methods are mandatory age limits and term
limits, although neither are the silver bullet needed to ensure boards are
bringing in the new talent, they need to face the exponential change
organisations have faced and will continue to face going forward. Both are a
means to avoid difficult conversations and mandatory age limits also assume that
those over a set age can no longer provide a valuable service to the board,
which seems rather ageist.

One method that boards should consider as part of their
refreshment plan (if one isn’t already in place), is a skills audit, conducted,
reviewed, and refreshed regularly. This helps you to understand what you’ve got
and what you’re going to need of your board members.

Completing a skills audit should involve:

1. An in-depth assessment and review of board members
skills in the context of the long-term strategy and ever-changing marketing
conditions. Ensuring focus is on the changing needs of the organisation and the
skills the board will require to solve future challenges is key e.g., DE&I,
ESG, digital and cybersecurity.

2. Conducting annual individual board member
evaluations. An external party can help bring an objective perspective here. Hanover
regularly conducts Board Profiling Assessments as part of our Board Review
work, where we explore both individual and board level performance. The UK Corporate
Governance Code also suggests external reviews take place at least every three years.

The outcome of a robust skills audit is a clear matrix of
what skills and behaviours you currently have and what you’ll need in the
future. It will allow you to quickly see the strengths and gaps you have and how,
when, and why, you may need to refresh your board.

With this in place, it is then critical to establish a clear
board refreshment programme with medium- and long-term goals. This will
allow you to plan and target your board’s refreshment and tenure balance to
ensure your specific objectives are met, while offering greater flexibility
compared to term limits or mandatory retirement age policies.

Attracting new NEDs

As mentioned above, one problem board’s can face,
particularly friendly societies and mutuals, is attracting new NEDs, in
particular inspiring your members to become NEDs. When considering this, it’s
important to ensure that any attraction strategy provides:

• A clear understanding of what a NED role is
• The commitment involved
• How an individual/member would benefit from it
• What value and individual/member would add to the Board

New NED’s will also require a robust onboarding programme,
and if this is their first NED role, key to attracting and motivating
individuals/members to put themselves forward, is to make sure they are aware
of the full range of support and training that will be available for them when
they become a NED on your Board.

Reach out to Hanover

Here at Hanover, we regularly conduct Board Reviews, helping
Chair’s and members better understand board composition in terms of skills and
behaviours, dynamics, and diversity. We also work closely with boards and
individual members to enhance effectiveness. For more information on how we can
help you refresh your board and ensure you continue to maximise effectiveness,
contact me directly.

N.B Originally posted by AFM