At its broadest level, a board has two fundamental responsibilities: To ensure compliance and to improve company performance.
However, as any directors will know, in practice it’s rarely this simple, with a heady mix of egos and senior level corporate experience clashing on a regular basis, each bringing their own agendas and experiences.
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In extreme cases, boards can ‘blow up’ at the detriment of the business – famously happening with both the National Australia Bank over hedging losses and The Future Fund over the selection of a new chairman.
But for start-ups that are wondering where to start with their boards, there are ways to balance the boardroom dynamics, mitigate risk and create a board that is diverse and forward-thinking.
Here’s how you can avoid a boardroom blow up:
1. Selecting the right directors
While this sounds like an obvious point, selecting the right directors is a major component of ensuring an effectively operating board.
Choosing the right people will depend a lot on the needs and expectations of each board and, as such, it’s crucially important for all directors to have a strong understanding of the role of the board in general, as well as the expectations the company has of individual directors in terms of experience and personal qualities.
It’s therefore important to look for directors who know how to behave in a team situation and can put their points of view across strongly, but not offensively. In short, people of integrity, judgement and self-awareness.
2. Consider diversity
Don’t be afraid to challenge the status quo when it comes to selecting board members. For too long in this country, boards have been made up of a narrow socio-economic group; typically late middle-aged men with a background in running large corporations.
Indeed, there is increasingly a new breed of director emerging, selected on the basis of the board’s need for a range of skills, abilities and insights, not to mention diversity.
In fact, evidence from research on the ASX top 500 companies shows that the presence of women on a board consistently increases the company’s economic performance.
Diversifying a board can therefore help it function more effectively, as well as avoiding ego clashes as those with similar backgrounds, egos and expectations come together.
3. Spot the early warning signs
It is also worth learning to spot the early warning signs of a board malfunction. This can be hugely beneficial down the line and is a key skill in keeping boards working effectively. The list is long, but common warning signs can include:
- An overly dominant personality.
- Hurried decisions based on inadequate data.
- Serial restructuring and resignations of key executives.
- A “do as I say and not as I do” attitude from certain individuals.
- Some kind of cover up – for example, a board deciding not to discipline a breach of company policy, interfering with information flow, or favouring particular interests.
- A ‘pass the buck’ attitude.
- CEOs who do not know how to behave with respect to staff.
- Significant ongoing negative variances between forecast and actual results.
Of course, not all of these things mean there is about to be major issues in the boardroom, but learning to spot the early warning signs is an invaluable skill when it comes to governance improvement on the board.
Hidden agendas among directors are unfortunately too common in the boardroom and can be hugely damaging to the overall company function if not brought out in the open.
It’s therefore of huge importance for all directors to be completely transparent with other board members.
Any potential conflicts of interests, or background issues that could cause problems further down the line should be discussed, dealt with scrupulously and managed from the earliest possible stages.
There are a number of ‘best practice’ means to deal with this situation. For example, if directors are voting on particular issue, the conflicted director should declare their conflict of interest, leave the room and refrain from voting.
It is a good idea to develop your own processes around conflicts of interest.
A board operating with total transparency is far more likely to operate effectively than one without.
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