How do you Address the Issues Posed by an Ineffective Board [of Directors]?
What problems does an ineffective board of directors bring?
An ineffective board of directors offer a business or organisation the worst of all worlds. Not only do they fail to deliver the necessary guidance and direction to the business, but also the support for it to meet its overall objectives.
So, what problems does an ineffective board of directors bring? There are a number of potential issues, but here are our ‘top five’:
1. Lack of skills
This could be across the whole of the board or specific to an individual, where the skillset isn’t broad enough or lacks the requirements needed to direct the business or contribute to good governance. Recruitment of any future board members should address this issue as a matter of urgency, by first conducting a skills audit to help ascertain the required skills needed in a new recruit.
In a recent article, Kieran Moynihan discusses what this means when it is the Board chair that is lacking the right skills or is ineffective in their role, the key issues and what can be done to manage and alter the situation.
As the recent resignation of KPMG’s UK Chairman Bill Michael demonstrates – quitting after his remarks were not in keeping with the firm’s culture mid-pandemic – the need for a leader to be in tune with a company’s employees, to show empathy and reflect a firm’s values to the outside world is more important than ever.
2. Lack of confidentiality or trust
Leaking or unauthorised ‘sharing’ of information outside of the board is unlikely to cause anything other than problems, especially in a world where reputational damage is a key risk for all organisations. Board members need to be aware of the Codes of Conduct in place and it should be made clear what information should and shouldn’t be kept confidential.
3. Conflicting agendas
Boards led by individuals who do not have the best interests of the business at heart (or indeed who do not have the right skills) and are motivated by a personal or political agenda, are likely to incite conflict and ultimately impact upon the running of the business itself. It is imperative that directors are aware and reminded of their legal duty to act in a way that is most likely to promote the success of the company for the benefit of its members as a whole and not for any other reason, personal or otherwise.
4. Lack of order and respect
It’s important that board members operate in an orderly and respectful way in their dealings with each other, staff and other key stakeholders; that the firm’s key values are reflected both inside and outside of the firm. Ensuring order and respect helps to build a framework for the business and to hold the board itself to account. The Handforth Parish Council Zoom meeting that went viral earlier this month after descending into utter pandemonium is a prime example of how not to behave!
5. Hostile environment
A hostile atmosphere won’t enable a board and its members to thrive and drive the business in the right direction. Creating a respectful, open, hardworking culture, in order to create a stable environment from which to govern, should be a priority for every Board.
What makes an effective board?
Due to the potential issues associated with an ineffective board of directors, a board’s continued effectiveness is a key risk facing any organisation. An ineffective board of directors can lead to a multitude of problems, from the business failing to meet its objectives, poor management and culture, failure to seize opportunities, through to poor profits or regulatory failure.
It is therefore imperative to ensure that the composition, roles and responsibilities, overall objectives and effectiveness of the board are reviewed and fully aligned to ensure delivery of strategy. Such internal reviews should take place on a regular basis, at least annually.
The NCVO represents “over 16,000 voluntary organisations, charities, community groups and social enterprises across England”. It highlights five ways in which a board can become effective, which include:
- Holding effective meetings.
- Setting out clear roles for each board member.
- Putting working groups and committees in place to support the work of the board.
- Effective board policies – “It’s helpful to create some core policies that clearly state how the board works.”
- Having an annual plan of work for the board, so that members are fully aware of what is expected of them.
As firms and their boards continue to face an unprecedented series of events, it’s clear that the need for an effective board of directors to provide skilful guidance and direction, has never been as necessary as it is now.
Bridgehouse Company Secretaries has a team of industry experts that offer a range of company secretarial advice to suit businesses of all sizes and types. Contact us on 0845 055 8260 or email email@example.com to see how we can help.