The importance of a board skills matrix
Creating a board skills matrix clarifies the thinking of the board and aids in productive conversations around skill sets. However, why is a board skills matrix so important and how can you use it to support the strategy of the organisation and facilitate succession planning?
These questions were discussed by a panel of experts at the recent Corporate Governance Forum held by Governance Institute in Sydney on 31 May. The session addressed how to evaluate the composition of a board, ensure the board composition supports the strategy and how a board skills matrix can identify gaps in skills or competencies that can be addressed in future director appointments.
The panel stressed the importance of an organisation being able to utilise the skills of its board to execute strategy and manage risk. The critical point was made that without self-reflection and an evaluation process involving rigour, a board risks ending up being a group of friends sitting around a board table. Creating a board skills matrix provides a company with a defendable and visible process of evaluating what each director brings to the board and how those skills assist the organisation achieve its purpose. Importantly, a skills matrix brings clarity about the skills an organisation has and allows it to plan how it will fill any skills gaps by either bringing those skills in from outside or utilising the skills of management.
What are the skills that an organisation requires its directors to have?
In addition to subject matter experience; industry and sector knowledge and experience; leadership skills and geographic experience, the panel stressed, in light of the current business environment, the increasing importance of digital expertise and ‘soft skills’ such as shared values and a sense of collegiality. Personal attributes such as courage and grit were recognised by the panel members as being important when times were tough. Diversity was seen as being important on a board, but not at the expense of having people on the board who cannot work together. The panel pointed to the importance of diversity of thought on a board with different perspectives leading to longer conversations around the board table.
The panel was asked how an organisation goes about changing the skill set of a board that is resistant to change. Creating a board skills matrix is viewed as a good way of initiating a process of change that can also include the introduction of term limits and the implementation of a board charter specifying what is expected of board members as regards the time commitment required and adequate preparation for board meetings.
Many governance professionals are tasked with implementing a board skills matrix. An important question considered by the panel was whether the skills of the CEO should be included in the board skills matrix. While these skills can be included in the matrix when the CEO sits on the board, the panel pointed out the importance of the non-executive directors having the skills which enable them to adequately challenge the CEO and review their performance.
The panel was of the view that an organisation should review its board skills matrix when there was a change in the board or a review of strategy but in any case, on an annual basis. This ensures that not only the current needs in relation to supervising the organisation and its operations are being met, but also so that any skills can be identified that may be sought as the strategy is implemented and the environment in which the organisation operates changes. The nominations committee, which would usually be charged with board renewal and the process of reviewing and making recommendations to the board on director appointments and reappointments, plays an important role in undertaking the review of the board skills matrix.
Those wanting further information on the topic are referred to Good Governance Guide: Creating and disclosing a board skills matrix.