Study: Efficient competencies for Board Members – complete

October 9th, 2012 – Vienna, Austria – AIMS International has launched the first issue of its international study about the most efficient competencies for Board Members.

The following is a full summary of the study which includes remarks and comments from members of the Research Committee as well as their constituents and some professional board directors.

AIMS International wants to foster a discussion on the topic of desired and efficient behaviors of directors, while creating a practical guide for chairmen of boards, directors, members of Governance Committees, CEOs and any other person involved in the recruitment and the evaluation of a board director.

AIMS International would like to thank the Research Committee for their contributions and active participation in this project: AIMS International, College of Corporate Directors/Université Laval and Gauthier Murtada & Partners.

Richard Joly, President, AIMS International Partner in Canada

Executive Summary

In this research, our goal is to identify the desired behaviors of an efficient director that can be observed inside the boardroom. We have looked into six specific behaviors: Sense of Ethics, Strategic Thinking, Commitment and Sense of Responsibility, Judgement, Communication and Team Intelligence.

From our results, we concluded that Sense of Ethics is the fundamental behavior that everyone is seeking from a director before they are admitted into a boardroom. It is a ticket of entry. The Sense of Ethics is preserved when a director has a clear independence of mind. However, the degree of ethics can be influenced by the motivation of the director to sit on a board. Social status and compensation are the two main drivers that can lead to soften the independence of mind, especially if remaining on the board is very important for the director. In this case, the director may not want to challenge or confront the CEO in fear of being asked to resign from the board.

The second behavior in importance is the Strategic Thinking. The desired behavior from the director is in the quality of the question that they will ask the management team. Questions asked should help to improve the quality of the strategic plan and to monitor its implementation. It is the ability to make decisions with limited amount of information and to properly assess the risks involved. An undesired behavior is a micro-management attitude, where the director is giving direct orders on how to execute an action. In this case, the management will take responsibility for bad results.

The Commitment and Sense of Responsibility is an important behavior but this element has greatly improved over the last 15 years. Today, there is more transparency and the stakeholders are more informed if a director is not performing.

Judgement is the fourth behavior and it revealed a surprising result when we looked further into the responses. The desired behavior is the ability to keep a strong independence of mind and the ability to correctly assess new situations. The director must be resilient and able to adapt to changing circumstances. Good Judgement is perceived as an innate behavior and it can be developed through the years. Judgement revealed a surprising result when we looked further into the responses. When we asked the interviewees to select the two most valued behaviors amongst the six, the interviewees selected Judgement in 83 % of the time, even higher than Strategic Thinking and Sense of Ethics which were selected 60 % and 43 % of the time respectively. Therefore, Judgement is the number one behavior we should be seeking when recruiting a new director.

The last two behaviors that we looked at, Communication and Team Intelligence did not seem to have a significant influence on the effectiveness of a director in the boardroom.

CONTEXT

Now more than ever, directors are subject to much attention and their role is becoming increasingly important on the boards of companies. All stakeholders want the directors to contribute to the growth of the company through active involvement on the board, while shareholders and other stakeholders are asking them to fully assume their role as trustee.

After several years of assessing corporate boards both in their efficiency and their structure, we observed that the behaviors of individuals that make up a board of directors of a publicly traded company are of great importance. How can we assess objectively the selection of the new director? How do we define the desired behaviors to ensure an efficient management of the board?

Over the last 20 years, the main improvements in governance have dealt with laws, regulations and structures. There was little emphasis on the behaviors of individuals that make up the boards.

In some countries, the regulators have requested that an assessment of the board be made annually, including the evaluation of individual directors. Today, in developed countries, the majority of traded companies are using this process. This is a significant improvement from 15 years ago. Another example is the concept of independent director where the board of directors must be composed of a majority of independent directors. These two examples demonstrate the advancement of good governance and its application to restrict directors to behave as if they own the company without taking into account the interests of shareholders and other stakeholders.

Desired behaviors of individuals are essential to have an efficient governance model within a board. They are the driving force that allows a board to reach the level of expected performance. There are many boards that are exemplary and it is often the boards of larger companies. And, in some cases, a board that is well perceived may be going through serious difficulties from within. In those cases, the undesired behaviors of the directors become more apparent and they can lead to a dysfunctional board.

There are very limited scientific literature and references documented to address specifically the behaviors of a director. Most publications deal with regulations, structures and duties. In fact, we found that most literature and references have mainly focused rules and regulations.

Our experience when recruiting a new director shows that few tools exist to assess the behaviors of a candidate during the selection process. Few benchmarks exist when recruiting a director for the simple reason that there are no specific assessing tools to evaluate a director. The results of the research are to offer a framework to understand the desired behaviors of efficient directors.

PURPOSE OF THE STUDY

What are the efficient behaviors that positively influence the work of a director?

There is a large inventory of tools to assess the behavior of a president and CEO. We have access to comprehensive databases to determine their future behavior. However, no assessment tools exist to perform a good evaluation of the director.

This is the main reason which motivated this study. We sought to better understand and define the elements that lead to efficient behaviors. The research was conducted with the following partners:

  • AIMS International: provide a wide range of services, including global Executive Search and Talent Management services worldwide to a substantial and diversified client base.
  • Gauthier Murtada & Partners: offer solutions in assessment, development and executive coaching. It also makes available to companies a wide range of psychometric tests and assessments tools.
  • The College of Corporate Directors at Université Laval: offer directors a unique, top-quality professional certification program focused on best practices in governance.

Together, we tried to identify the key behaviors for efficient director and how these behaviors can enable the board to better fulfill its fiduciary duty. The Research Committee consists of Mr. Jean Bédard Professor at the School of Accounting, Faculty of Sciences from Université Laval and speaker at the College of Corporate Directors; Mr. Jacques Grisé, Ph.D., F.Adm.A, Program Director at the College of Corporate Directors; Mr. Pierre Gauthier, founder of Gauthier Murtada & Partners and industrial and organizational psychologist; and myself, Richard Joly, President of AIMS International Canada, executive recruitment consultant and trainer and speaker at the College of Corporate Directors/Université Laval.

METHODOLOGY

This paper presents the results of a study involving the interviews with 45 seasoned directors in seven countries: Canada, Finland, Germany, Hungary, South Africa, Sweden and United States. Interviewees are sitting on boards of traded companies with revenues of more than $1 billion. These board members all have over 10 years of experience in different industry sectors.

An advisory committee helped the research team to identify the six most desired behaviors from a list of 39 standardized behaviors used in the assessment of CEOs.

A questionnaire for each of the six behaviors was developed. We then conducted face to face interviews using the questionnaire to gather comments from the interviewees based on their professional board experiences.

Following are the six behaviors that were the subject of this study:

Sense of Ethics: Demonstrates a high sense of integrity and puts forward strong values related to ethics. Places the needs of the company before his own.
Strategic Thinking: Has a clear vision, anticipates trends and considers the risks associated with strategic decisions. Analyzes situations in a global perspective. Has good sense for planning and anticipating the long-term impacts.
Judgement: Knows how to put things in perspective and sets priorities after assessing the facts objectively. Remains objective in analyzing complex and ambiguous situations. Adopts a constructive approach and ensures good balance of the different views.
Commitment and

Sense of Responsibility:

Honors its commitments. Shows availability and assiduity. Spares no follow-up.
Communication: Able to share his views with clarity by promoting the adhesion of others. Knows how to use the right words to simplify the complexities of his thought.
Team Intelligence: Focuses on common goals, priorities and problems through active listening of the concerns expressed by others by focusing on teamwork. Seeks to establish trusting relationships. Recognizes the importance of complementarities on the Board.

In this study, we collected more than 2,000 pages of interview notes which were the subject of a thorough review. The observations and the information disclosed from the interviews were recorded, compiled and personal identifiers were removed to preserve confidentiality. In this report, we list the desired and undesired behaviors which we have extracted from the interview transcripts with some of the most relevant comments and opinions.

Our goal is to present what directors experienced and lived according to the six behaviors we aimed to better understand. This study contains six sections, one for each behavior. In each of these sections, you will find the definition for each behavior, a brief summary of the results of the study and the list of desired and undesired behaviors mentioned by respondents.

SENSE OF ETHICS

Definition: Demonstrates a high sense of integrity and puts forward strong values related to ethics. Places the needs of the company before his own.

For ethical values to be firmly rooted in an organisation, it must start from the top. The behaviors must be adopted by each director.

Clearly, the chairperson plays a vital role to enforce a sense of ethics in a board setting. It is he who sets the tone hence the term “The Tone at the Top”. It is he who embodies the values that convert into behaviors within the meaning of ethics. It is he who will ensure that these behaviors are respected by everyone, including management.

In our study, we observed that there are two situations that can influence the Sense of Ethics: independence and compensation. The interviewees were clear in stating that if a director wants to remain on the board to help its social status, business contacts or to preserve or needs the income, he/she may tend to dilute their independence. In those two situations, the director will not disturb the CEO or chairperson in fear of being asked to leave.

STRATEGIC THINKING

Definition: Has a clear vision, anticipates trends and considers the risks associated with strategic decisions. Analyzes situations in a global perspective. Has good sense for planning and anticipating the long-term impacts.

The desired behavior of Strategic Thinking is the ability to filter the facts through past professional and life experiences. It is the ability to analyze the information provided by management and assess what is good, what needs improvement and what is missing.

The diversity of the members is the greatest contribution to the strategic thinking. Everyone will provide opinions that are diverse because they are based on different past experiences and industry background. Respecting each director’s opinions is highly important to raise the level of strategic thinking in a board.

The clash of ideas and diversity of opinions is vital to ensure that strategies are validated. This exchange process contributes to understand and identify the risks of the company. Moreover, according to respondents, strategic planning and risk management are becoming increasingly complex and important in a board. This is one reason why the former CEOs of large corporations are sought to become directors since they have practical experience of executing a strategic plan and to manage risks.

The role of the director regarding the strategic plan is clear. It is not his responsibility to develop the strategy. However, he must ensure that a strategic plan exists, that it is a good one and that it is implemented.

A common undesired behavior of a director is micro-management where specific directives are given to management. When the directors are acting as managers, it takes away the ownership of the outcome from the management team. JUDGEMENT

Definition: Knows how to put things in perspective and sets priorities after assessing the facts objectively. Remains objective in analyzing complex and ambiguous situations. Adopts a constructive approach and ensures good balance of the different views.

The behavior of “Judgement” received many interesting comments. It is interesting to note that when we asked respondents to prioritize the six behaviors, only the judgment was ranked as the top behavior in 100% of cases.  For most respondents, judgement is seen as a proof of the quality of a director. A director who has no judgment is an ineffective director.

Respondents believe that judgment is partially innate and may developed over the years. They observed that a long academic training does not ensure a better judgment. Rather, it is the accumulation of professional experience that fosters better judgment. Directors must deal with facts objectively. That is to say, they filter information through their professional experiences and they provide a constructive and different opinion. Usually, a director should have demonstrated the ability to have a sound judgment in his prior career as a professional manager or entrepreneur. This is a behavior that allowed them to be successful. Retired CEOs have usually demonstrated good judgment to be successful in their career.

An important factor in the conduct of a director is the fact that they are asked to constantly make business decisions without having all the facts. Their good judgment will guide them in how to take action without assuming unnecessary risks. Those who are too emotional or who are always in a brainstorming mode will have more difficulty to step back and adopt a desired behavior with respect to judgment.

Those who repeat the same mistakes or apply generic formulas to all problems also show poor judgment. Like Sense of Ethics, Judgment is a behavior that predisposes a director to have an independence of mind. They should not be influenced by trends, concepts or by the opinion of the other directors

 

 Commitment and Sense of Responsibility

Definition: Honors its commitments. Shows availability and assiduity. Spares no follow-up.

Today, directors are exposed to greater risk and more responsibilities than ever before. Respondents attest that there are few directors nowadays who are not well prepared for meetings. Since the average number of director on a board has decreased in the last 15 years, each must fulfill their duties with diligence. The formal assessment processes of the board helps increase its effectiveness. Also, there has been an improvement in the transparency regarding the attendance level for each director.

Because the work load has increased, the expectation is that each director must contribute and carry their weight. Inside the boardroom, it is easy to identify who has not thoroughly read all the information provided. Preparing a well-structured question prepared in advance is the most efficient behavior for a director. It increases the meeting effectiveness and discourages the board to fall into a brainstorming mode because questions are asked on the spot without thinking it through. More and more, directors are living in a fishbowl and they can no longer hide their lack of preparation and contribution to the shareholders.

 Communication

Definition: Able to share his views with clarity by promoting the collaboration of others. Uses specific words to simplify a complex thought.

 

A director must say what he thinks, feels and believes in a transparent manner. Questions that he asked must be of quality. A director who expresses his ideas with a structured thinking process adopts a desired behavior. Having good content when making a comment is a desired communication behavior. This is the best tool to influence other directors.

On the opposite, being eloquent with a meaningless message is an undesired behavior. It leads to a loss of credibility with other members.

Active listening and having an open mind are two best behaviors that the respondents are seeking from a director. It allows for everyone to express their ideas without being judged. It also allows the other directors to see things differently.

Many directors mentioned that learning new ideas are one of the main reason they are motivated to be on a board, even if they are at the end of their career.

Team Intelligence

Definition: Focuses on common goals, priorities and problems through active listening by focusing on teamwork. Seeks to establish trusting relationships. Recognizes the importance of complementary skills between Board directors.

Directors are seeking respect from other directors on the board. In fact, a Chairman prefers that each directors refrains from socializing with (i.e. outing activities with spouses) in order to preserve their independence of mind. They do not want anyone to be influenced to hold back on their opinion, because they are forging a personal friendship. The desired behavior is to have individuals who will test the opinions openly and create a clash of ideas. Too many familiarities can interfere in these circumstances. What is crucial for the Board to work well is to have diversity and a full exchange.

Some even admits that the debates and disagreements in a Board setting motivate them to stay. One can always disagree and it must be done in a respectful manner. If a Board member is too emotional or wrapped up in his opinion, then he will demonstrate undesired behavior. It is also negative for a director  to use his reputation (i.e. CEO of a large corporation) to influence the Board or even bully another Board director.

Corporate Communications

Christian Schulte +49 178 2854744


About AIMS International (www.aims-international.net)

Incorporated in Vienna, Austria in 1992, AIMS International is an international executive search organization of independently owned and managed executive search firms who work collaboratively to execute executive search assignment for global clients around the world. AIMS International is represented by over 350 consultants in more than 90 offices in over 50 countries throughout all continents. It was ranked the largest executive search partnership in the world by Search-Consult Magazine.

For more information, please visit www.aims-international.net.