How to win at the board game
Wednesday, January 30, 2013
from AVA Global Ltd
In any one day I may have 20-30 conversations or meetings with C-Level executives of global energy and natural resources organisations. These conversations can take many forms yet, at some point, we will always move on to talk about a senior management team of some sort. This may be in their current organisation or forming opinions on a competitor's board structure.
Establishing a successful C-Level team is akin to putting a football team together. We all have opinions on whether a team needs more creative midfielders or do they really need a ball winner. Board composition is no different. Could a board survive if every member had a finance background? Similarly would Man United be successful with 11 attacking full backs?
When working with organisations to either assess the current capabilities of their board or searching for a new senior executive to join the current team, one of the first areas I focus on is the senior management team.
Does this organisation have a viable, proven set of assets?
Does the organisation have the senior management team to capitalise on these assets and drive the business forward?
Both private and industrial investors are no different in their initial assessment either. The key to driving significant shareholder value is through a strong and well respected management team. This is vital in the FTSE 350 and even more so for AIM listed organisations, where share price volatility is even more extreme.
Having recently put together an entire board using our board skills analysis tool (AVA ABC) for a small cap Oil & Gas producer, a number of questions were put to the Group Chairman that he had not fully considered before.
What are the organisation's strategic goals and what strategy is in place to reach them?
What are the roles and responsibilities of your current board? What are their strengths and weaknesses? How are they aligned to help your organisation achieve its goals?
What skills and capability gaps have emerged from this assessment?
What are the roles and responsibilities of the new position?
I have found that a board with a diverse set of functional expertise (M&A, Legal, Finance, etc) industry experiences, educational qualifications, ethnic and gender mix are better equipped to deal with a variety of issues facing the organisation and provide executives with advice and consultation from multiple perspectives. The stronger the mix, the stronger the management team.
Over the years I have met thousands of CEO's, CFO's, CIO's etc and have very rarely met a poor one. You have to be good to become a board director of a listed company. So how do you separate the great from the good? Now that would be telling but Headhunters have been trained in such methods, using a variety of tools at our disposal, to select only the very best talent in the industry. However, having seen many boards thrive and grow, several more boast stories of shareholder unrest, unsettling arguments, unhealthy divisions and generally poor corporate governance. So if we assume that all listed board directors are on a scale of good to great, the probability of success at board level can be measured by one single unit - cultural fit.
Headhunters have strong networks and are able to provide substantial information on all Director and C-Level executives of global listed organisations. As I mentioned earlier we have several 'confidential' conversations on a daily basis so you shouldn't be surprised to know that your name is on one of our lists. You also shouldn't be surprised to know that we have spoken to maybe five or six people about you and you certainly shouldn't be surprised that after a number of conversations and meetings we are able to assess what culture you would thrive in. We deliberately seek to find the person behind the CV, what drives you to achieve, what are your de-railers, how you deal with confrontation. The list is endless.
As organisations grow and develop, more senior appointments are made to facilitate and capitalise on this growth. I believe, globally, we are entering a period of sustained growth. Organisations will continue to appoint board directors based on their track record, strength of network, how they fair at interview and any psychometrics tests that may have been carried out. Yet, despite all this over 30% of these board appointments will be unsuccessful. Over 80% will cite cultural fit as being the main obstacle for success, yet did they really seek to assess or clarify the correct cultural fit and board composition for the business in the first place?
To win the game you need a strong board that collectively have the combined skills and attitude, aligned to the culture and goals of the business, able to see the organisation through a period of growth, transition, change or maybe turnaround. To ensure you win, to maintain that competitive advantage, don't forget cultural fit when you are conducting your next board composition analysis.
This article is for information and discussion purposes only and does not form a recommendation
to invest or otherwise. The value of an investment may fall. The investments referred to in this
article may not be suitable for all investors, and if in doubt, an investor should seek advice from
a qualified investment adviser. More