Boards of organisations of all shapes and sizes in the private, public and voluntary sectors face new challenges due to the way society expects businesses and not-for-profits to behave.
These challenges have been brought about by the corporate excesses of the last century and the dramatic failures of the financial sector, particularly banking, around the world since the 2008 crash.
Whilst demanding a new way of thinking from boards and their directors, the new legislation and corporate governance code also provides new opportunities for coaches, mentors and consultants to work with boards, either on a one-to-one basis or as a team.
The Challenge for the Board
Corporate Governance in the UK as set by the Corporate Governance Code and the 2006 Companies Act has a very different feel to it in the 21st century than in previous times when it was assumed that a director’s duties started and finished with making sure that shareholders received an adequate return on their investment.
Today, company directors are expected to create and maintain a sustainable business which creates wealth for its stakeholders, employees, customers, suppliers and shareholders and adds value to society at large – in sharp contrast to the ‘unacceptable face of capitalism’, asset-stripping, short-termism which was prevalent in the 80s and 90s.
In parallel with this sea-change in company governance we have also seen the rise of a new breed of leadership, reflecting the need to engage and empower employees rather than keep their ‘noses to the grindstone’ or their ‘feet to the fire’.
The Board’s prime purpose is to set and maintain the organisation’s Mission, Vision and Values. Often it is the values, which are seen as ‘soft and fluffy’ by a significant number of Small to Medium-sized Enterprises (SMEs) which cause directors the most difficulty.
Yet, as we have seen recently with Tesco, it is when a business loses sight of its core values (protests against new stores and boycotts by farmer suppliers) there is probably much worse to come.
The Challenge for the Coach
Given these changes in the ways boards are expected to work we can expect similar changes in the support that boards and directors require. For example, it is now commonplace for executives to have a personal coach or coach/mentor and the government backed GrowthAccelerator programme, now re-badged as the ‘Business Growth Service’, has funded a number of business coach interventions for SMEs with high growth potential.
Boards are also looking for more permanent support in the form of Non-Executive Directors (NEDs). Looking at the skillset required to be an effective NED it is clear that there is a significant overlap with the skillsets of Consultants, Coaches and Mentors. Indeed many people have built successful portfolio careers by performing a number of these roles at the same time (though probably not with the same client).
Diagram 1: The Board support model
Examining the four roles, it is useful to consider them in pairs, sitting at opposite ends of a spectrum, as shown here. On one axis we have the Coach / Mentor spectrum and on the other the Non-Executive Director / Consultant spectrum. That is not to say that the two axes are mutually exclusive – in any given situation, individuals can perform a number of roles, although one will always be dominant.
In the UK unitary board structure, Non-Executive Directors have exactly the same legal duties and responsibilities as the Executive Directors. In a way, this is what gives them the authority to be listened to at Board meetings – they have just as much to lose as the executives if anything goes wrong.
They do, however, perform completely different roles to the executives, who are full-time employees with functional responsibility for running the business. Non-Executive Directors are part-time, ‘hands-off’, officers of the company who take a longer term-strategic view. The NED role is best summed up by the two words ‘critical friend’, and it is striking the right balance between challenge and support that makes a NED effective.
In the context of supporting the board, a Coach is a catalyst – someone who will enable the board members, either individually or as a team, to develop and face challenges by self-realisation and awareness.
Business Mentors provide guidance from the perspective of having ‘been there, done it and got the T shirt’. The end points of the Coach / Mentor continuum are well understood but there is much debate about where Coaching stops and Mentoring begins. In my experience, at board level, most support is delivered somewhere near the middle of the spectrum – with a mixture of coaching and mentoring as appropriate. This is likely to be delivered to individuals and the board as a whole.
The prime difference between being a non-executive director and a consultant is that a NED has the same legal duties and responsibilities as all the other board members, whereas a Consultant only has a duty of care to deliver a specified programme of work.
There is a commonly held misconception, particularly amongst SMEs, that having a NED on the board is a cheap way of getting consultancy. NEDs should be wary of this and should try to avoid getting sucked in to a ‘hands-on’ role within the business.
There are times in the life of a business or not-for-profit when it is appropriate for everyone, including NEDs, to get stuck in to resolve specific issues – and there is nothing wrong with this, providing it is not a regular occurrence.
I have known cases where, in order to avoid conflicts of interest, NEDs have resigned from the board, undertaken a piece of consultancy work and then re-joined the board when the work was completed. This is a little extreme, but as with the coach / mentoring axis, in reality individuals may be asked to provide a mixture of non-executive and consultancy support and the key is to make sure that the nature of the engagement is fully understood by the board with transparent arrangements for remuneration and performance management.
The Challenges of Diversity
Much is being made these days of the need for greater board diversity in terms of gender, ethnicity and disability. There is certainly a body of evidence to support the proposition that a more diverse board is more effective when it comes to making strategic decisions, and I fully support the move towards greater board diversity, especially with regard to having more women on board.
However, there is no clear agreement as to how this increase in board participation by women, ethnic minorities and those with a disability should be achieved. Countries such as Norway and Germany have imposed a legally enforceable quota for gender diversity, but even within these countries this move is not generally supported – especially by the ‘women on boards’ pressure groups. The feeling here is that women should be appointed to the board on merit and not as part of some box-ticking arrangement.
It is generally agreed that the make-up of the board should reflect the demographics of the employees, which in turn should be similar to the demographics of the wider community. The problem is that this is likely to take some time to achieve, and until there is a sufficiently large pool of diverse candidates to draw from, something more radical needs to be done to address the problem.
This is where our pool of talented, experienced, non-executive directors, consultants, coaches and mentors can play a significant role. Due to the ‘baby-boomer’ population bulge, there is a significant number of people with relevant commercial experience ideally placed to support boards as they become more diverse.
Unfortunately, it is these people, often white men, who are classed as ‘male, pale and stale’ and find it difficult to secure NED appointments. As the majority of boards are not diverse and the number of candidates with the desired characteristics, in terms of diversity, is low then this inevitably means that people will be appointed to boards without the necessary skills, experience, background or qualifications – thus reducing the effectiveness of boards which is exactly the opposite outcome to the one that is intended.
There is a solution to this problem and that is to use Associate & Alternate Director appointments to introduce new blood to the board without diluting its effectiveness. Combined with suitable support from experienced board members, this approach can achieve the aims of the board diversity agenda in an acceptable timescale.
Developing Associate and Alternate Directorships
An alternate director is someone who reports to a functional executive director and can take that director’s place at the board if the executive is unavailable. It is a way of ensuring that the key business functions are always represented at every board meeting and, by exposing non-board level staff to the workings of the board, it is a way of succession planning for the board.
Similarly, associate director appointments can be used to add new non-executive directors to the board in a non-voting capacity, so that they can gain valuable board experience and grow into the role rather than being thrown in at the deep end.
In both cases, formalised arrangements for coaching and mentoring the alternates and associates by the executives and non-executives are put in place with suitable one-to-one ‘buddying’. This arrangement benefits from the significant skills, knowledge, background and experience of the established directors to bring-on the aspirant directors before their first formal board appointment.
I’m a coach – get me in here!
Boards in general and SME boards in particular are reluctant to take professional advice. This may be due to the common perception that the meter is always ticking, racking up exorbitant bills whenever advice is sought form an accountant or lawyer. But it is essential that boards, in all sectors and of all sizes, take appropriate advice. Insolvency practitioners often tell me that if only businesses with financial difficulties had contacted them sooner they might have been able to save them.
This reluctance to seek external advice is particularly difficult for consultants, coaches, mentors and those looking for non-executive director appointments. There are a great many boards out there, many of them are dysfunctional, and would benefit greatly from some external support. However, relatively few make effective use of what is available.
One of the key duties of a board is to manage the strategic risks inherent in the business. Effective risk management and assurance provides a framework for the board to determine how it should devote its time, paying particular attention to the areas where it should seek external advice and support.
The 2006 Companies Act
Companies have been around since Elizabethan times, yet it is the 2006 Companies Act, which for the first time, defines exactly what a company director’s duties are. One of the most important of the seven duties is the requirement for all directors to promote the success of the company.
The Act goes on to explain that this means having regard (amongst other matters) to:
- The likely consequences of any decision in the long term;
- The interests of the company’s employees;
- The need to foster the company’s business relationships with suppliers, customers and others;
- The impact of the company’s operations on the community and the environment; and
- The desirability of the company maintaining a reputation for high standards of business conduct.
Implications for future coaches and mentors
In pursuit of these objectives, with the goal of creating and maintaining sustainable businesses, boards can make use of the guidance and support provided by Non-Executive Directors, Consultants, Coaches and Mentors.
If you have the skills to work with boards in these roles, then it is vital that you have a thorough understanding of the issues facing boards in the 21st Century which are shaping the way in which businesses of all shapes and sizes in the private, public and voluntary sectors need to be run.
The UK Corporate Governance Code 2014
The 2006 Companies Act
The Business Growth Service
What skills do Non-Executive Directors need?
The UK Model of Corporate Governance Institute of Directors
Is your board dysfunctional? Australian Institute of Directors Volume 11 Issue 11, 12 Jun 2013
I would like to acknowledge Pauline Willis for the numerous discussions we had in developing the thinking for this piece and the Institute of Directors for their Chartered Director programme and continuing professional development support
About the author
David Doughty is a Chartered Director with a Masters in Company Direction from Leeds Business School. He works with boards and their directors in the private, public and voluntary sectors to improve their effectiveness and the performance of the organisations that they lead. David is a registered and approved GrowthAccelerator Coach and a certified EQ Mentor.
You can contact David via E: firstname.lastname@example.org, or M: 07876 653 563.