Too many directors are appointed with little or no board-specific education. Such training as there is focusses on compliance and governance. Directors need more practical street-knowledge – how to review financial plans, work with fellow directors and advisers, make the most of board meetings, how to make risk-decisions, respond to unsolicited bids, select head-hunters, and deal with underperforming CEOs and chairs. This knowledge is generally gained only from personal experience, and every director knows the joy when, faced with an unfamiliar, tough situation, a colleague remarks that they’ve seen this before and they know what to do.
Boards need to do better, as no-one seems to trust them. Governments are trying to regulate ever more; openly claiming that directors aren’t doing their job properly. Shareholders, even with annual votes on directors, are still dissatisfied. Audit firms, keen to divert attention from their own failings, point the finger at audit committees. Media, especially social media, scrutiny of boards is faster and more damning than ever.
How do we help boards to work better? The Corporate Governance Code is a sensible framework, but this summer’s white paper is a hotchpotch of pet ideas to interfere further, with no evidence that they would improve board performance. Government interference and more regulation are not the answer. Boards will not improve by discussing more compliance rules or by reviewing ever longer compulsory disclosures.
If only we had proper investigations into company scandals and collapses that focussed on what went wrong and what we can learn, rather than who is to blame. This would provide a goldmine of advice and warnings to board directors, alerting them earlier to possible issues. My new book, ‘Behind Closed Doors’, starts to do this, by drawing on 30 years’ experience of being on boards through difficult times. Directors will learn far more from reading about others’ experiences than from writing yet another policy for the Annual Report.
Better education is the first step, but directors also need the confidence and courage to stand up and be counted, both inside and outside the boardroom. Excessive executive pay is sometimes waived through on the recommendation of remuneration advisers, who’s main stake is continuing to be employed by those self-same executives. Board proposals can be approved without directors fully understanding them or ensuring a fully thought-through risk appraisal. Much easier sometimes for non-execs to remain quiet even if they have misgivings, rather than be seen as troublemakers. Silent executive directors can also be complicit, hoping that the non-execs spot the issue and take the flak.
Directors should be bolder in speaking out publicly and educating external commentators. Many media commentators are unaware of the legal and governance background behind board decisions, as illustrated by recent comments about take-over bids. As the relevant board itself often can’t comment publicly, other directors should be explaining to the outside world why a decision had to be made.
Better boards require more education, not regulation. As directors, we need to educate and reform ourselves. Directors can and should learn most from the experiences of other boards. But as a society, let’s help, nurture and encourage a diverse, more informed, confident, and braver directorate. Directors can no longer afford to be mystified and mysterious behind the closed doors of the boardroom.
This article appeared first in the Times on 31 August 2021. These themes are explored in detail, with many more hard-earned pieces of advice, anecdotes and tips in ‘Behind Closed Doors. The Boardroom: How to Get In, Get On and Make a Difference’