Besides knowledge of the specific industry and company, a board member must also be qualified in the following four dimensions: focus on results, strategic orientation, the ability to work well in a team and independence. The last of these not only refers to the absence of conflicts of interest and potential interrelations, but also the ability to make a judgment to the best of one’s knowledge and belief and to advocate an idea even if opposed by a majority of the board.
We are currently seeing a general trend toward structured processes: Often candidate profiles are defined and these then lay the foundation for a structured search, coordinated by a nomination committee or the chairman of the board of directors. However, even today, people frequently give in to the temptation of dropping names and rely mainly on those which are well known, regardless of any profile that might have been drawn up.
Independence is one of the decisive core competences of each and every board member: On the one hand, a board of directors and thus its members must be close enough to the action for them to understand how the business is performing and especially to be able to judge the quality of its management. At the same time, a board member must perform his or her duties independently, impartially and with the necessary amount of resolution. Only then is excellent governance guaranteed.
This situation is similar to what I already explained about member selection: Today there is definitely a focus on achieving a balanced distribution of skills, and there are also specific requirement profiles, for example, which are defined for members of compensation, nomination and audit committees. At the same time, however, we are finding that “softer criteria” are not being taken into sufficient consideration; when selecting board members one must ensure that the board is as diverse as possible, in order to guarantee stimulating, productive debates and discussions. For example, “only” recruiting successful CEOs to join the board of directors could lead to an overabundance of generalist knowledge, rather than the special components (such as risk) which are relevant to a company and which can be decisive, particularly in times of crisis. A board only filled with CEOs can also run the risk of having too many “alphas” trying to square off against one another.
It’s impossible to make a blanket judgment: All in all I think that the diagnosis is definitely good and it’s no coincidence that Switzerland has an above-average number of companies that are extremely successful in international competition, from SMEs to major corporations. One thing I can say for sure is that the companies that see successful development over an extended period of time also have above-average boards of directors. Generally the quality of board members only becomes an issue once a company has run into problems - luckily these are exceptions.
There is no standard, universal model for assessing board members; the strategy, size and complexity of each individual company differs too greatly. Many board members subject themselves to an internal “peer assessment process” which can certainly be suitable if conducted with the prudence and conscientiousness required. Increasingly, however, boards in Switzerland are also switching to external evaluators which ensure a greater degree of independence in their assessments, while also making it possible to benchmark against external competitors. The board of directors must then answer a number of key questions, both on an individual basis and as a whole, such as: Does the board of directors function as a team? Is there sufficient balance between cooperation and challenges? Does the board of directors deliver effective results, and how is the quality of the decisions made? Does the board of directors have the expertise, experience and skills required? And so on and so forth.
Ongoing assessments of key positions are crucial, and just as decisive to the success of a company as a professional financial and risk management system, for instance.
Here the focus is on professional qualities in addition to the personality related qualities that apply for each board member. A member (and the chairman) of the audit committee must have an in-depth knowledge and a proven track record in the areas of auditing, finance or risk. Depending on the complexity of the situation, a thorough understanding of the industry should also be required such as in complex, regulated industries like banking, insurance or even pharmaceuticals, for instance.
We don’t see any differences in quality from one industry to another, and frequently you can find the same people on boards of directors in different industries, something that should certainly be welcomed.
There is still a need for action, to varying degrees, with regard to the diversity of individual members, not just concerning the gender mix but also their expertise, experiences and, in international companies, geographic or cultural origin.
There is also some work to be done concerning the performance assessments I mentioned earlier: It’s unfathomable how a comprehensive employee assessment process that extends throughout the entire organization has become standard practice in most companies yet that the institution with the greatest responsibility of all is not subjected to some sort of comparable process!
Interview: Andreas Hammer, Marketing & Communications
