Balance on the board

15 December 2006 by Ian Odgers

Watch Tiger Woods in top form. His balance is absolute, delivering that enviable fluid swing, accomplished with such ease and grace to produce formidable power, accuracy and touch. The importance of balance is understood by all great sportsmen. You cannot deliver the powerful strike, serve, kick, punch, surge of pace, unless all parts of your body are working in harmony, each muscle providing the appropriate positive tension for the whole to explode into action at the moment it is needed; no part sapping strength from another or destablising it; but all poised to deliver the vital strike when needed.

So it is in business. A balanced board, properly focused and working together to achieve its objectives is a formidable competitor. A board not properly balanced is less than optimal, while a divided board is unstable with results that can be catastrophic.

Weight and function

Questions of balance include: size; the ratio of non-executives to executives; the skills and experience mix within those groups; the personality profiles and how those impact on the dynamics of the board and the culture of the company; how non-executives split their role between governance issues and add value through their knowledge, contacts and experience; and the balance of power, particularly between the chief executive and the rest of the board.
 
The board must be large enough to carry weight and also be able to function effectively when some of the directors are away. "air time" to directors. 10 to 12 board members is seen by many to be about right.

Executive v non-executive

The proper balance of executive to non- executive is important. If the non-execs are not powerful enough, they may be rolled over by the executives, who have the advantage of greater information and control its supply. On the other hand, a board with too few executive directors can be demotivating to the key operational executives ultimately responsible for producing results. Further, the board cannot scrutinise their performance on an ongoing basis, nor can they grow through participation on that board. This is one of the most frequent causes of top executives defecting to other companies.

Neither side should dominate. When non- execs either constantly harass or eclipse the executive, the latter becomes resentful, withholds information, and does not contribute, which both prevents the non-execs from getting a proper understanding of the issues facing the business and reduces the effectiveness of the executive performance.

Where the executive dominates the non- executive, there is potential for real trouble. Non-execs who lack credibility or do not have an appropriate power base cannot exercise their vital role of governance. They must be independent, courageous, and carry sufficient gravitas and influence together with the means to exercise their will such that when things do go seriously wrong, they can take appropriate action. Within the board, the axis of the chairman and the CEO is immensely powerful. A strong chairman/CEO combination can move mountains. Where that relationship breaks down the company becomes ungovernable.

Board composition

The composition of the board will vary according to the type of company it is, its markets, size, growth, culture, and stage of development. Companies naïve about financial markets will need a City input; one expanding across borders will seek international experience; a small high-growth company values the experience of someone who has already suffered the pain encountered by rapidly growing organisations, and who can foresee problems early and identify their resolution. Boards are fluid as members are appointed or resign, and the chairman should always be thinking ahead to ensure that it does not suddenly drop out of balance.

The non-executives have a governance role, but they should also add a significant extra dimension. People who have run businesses, who have been through the trauma of a share-price crash, who understand the problems of restructuring, declining markets, launching new businesses, and making and absorbing acquisitions, can provide valuable insight and a vital steadying hand when needed. It does not mean that non-executives should only be drawn from the ranks of existing chief executives of other companies. This can lead to unhealthy concentration on a single type of experience and skill set.

Balance of personalities

Finally the dynamics of the board must be right. The mix of personalities must be such that positive rather than negative tensions are created; entrepreneurial zeal and sensible caution are appropriately balanced. The chemistry must be right for informed debate, clear thinking, proper evaluation of problems and their resolution, laying a clear framework and direction in which the executives can carry out their tasks.

Building a balanced board is complex. Searches for directors need to be undertaken to the highest professional standards, involving extensive discussion with all board members and careful evaluation of candidates to assess not only their personal strengths and weaknesses, but how they will operate in the context of the board, both present and future. The pay-off is a team with the balance, commitment and will to win that even great sporting heroes would admire.

Category: Best Practice