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Dust Off Your Skills Matrix

March 15, 2018

Posted in: WATSON Views

Elevate the board. Get out of the weeds. Raise your perspective. For years, governance experts have been chanting these mantras to help boards enhance their contribution. And, for the most part, boards are embracing practices and processes to slide further along the operational ↔ strategy continuum. But when it comes to board stewardship, boards need to reverse their tack. They need to dig deep, get deliberate and dive into the details. Need proof? Look no further than the skills matrix, the poster child for a thoughtful approach to board renewal. Over time, the skills matrix has found itself comfortably tucked away in many board’s renewal practices, often a stale list of vague requirements offering little guidance on board recruitment priorities. Herein lies the challenge. Getting the right people to the table is the first step to a well-functioning board. In order to do this well, you need to dust off your skills matrix and put it to work for your board.

A well-crafted skills matrix is more than just a document that tells us we need a lawyer, an HR expert and a fundraising guru. It sets out the skills, experience and diversity considerations that, when realized, allow your board to function at its best. It defines not only the expertise required at the table, but also sheds light on the attributes essential to a high performing board.

The skills matrix is perhaps one of governance’s strongest examples of the power of process. It requires a combination of diligent committee work, director engagement and forward-looking governance. The dialogue, debate and reflection around the table helps create a living document that shapes the board’s composition and, ultimately, contributes to the organization’s success.

Maximize the Process

The creation of the skills matrix is an all-board endeavor. However, it is common for the Governance Committee to lead the process, gather data, develop the documents and seek full board involvement at key times in the process.

1. Start with strategy. Identify what skills and experience the board will need in the future to maximize its contribution and impact. Engage the entire board in a conversation to answer:

  • What are you trying to accomplish in the next 3-5 years?
  • What is the mandate of your board?
  • What recent events and expected future challenges does your organization face that your board should be responsive to?
  • What are the three most important things your board has to accomplish this year? Next year? Over the next 5 years?

2. Define the criteria. Gather input (through surveys and interviews) from all directors to refine what skills, experiences and diversity considerations are needed.

  • Prepare a list of considerations in advance and provide directors with the opportunity to contribute additional criteria.
  • Expand your definition of diversity beyond gender. Consider ethnicity, geographic location, urban vs. rural, age, etc.
  • Rank the results and discuss how to narrow down the criteria.

The game changing step that most boards miss is putting the meat on the bones of their skills, experiences and diversity considerations. Strategy, leadership and communications mean a lot of different things to different people.

3. Drill down.

  • Develop 3-5 qualifiers for each requirement that clearly describe the must-haves for your board. Qualifiers should spell out the specific details that differentiate your requirements from any other board’s. Most boards seek directors with leadership experience, but what does that mean for your board? Be specific. (See the sample skills matrix below.)
  • Next, establish targets for each of these skills and experiences on the board.
    • Do you need three people with governance experience, or five?
    • Do you need one financial expert, or two?

4. Solicit feedback and approval from the entire board.

  • To avoid rubber-stamping, incorporate thought-starter questions to promote dialogue.
  • Look for collective gaps. Conduct a survey where each director considers which skills and experiences on the matrix each of the other directors currently have. Roll up the results in an anonymous report.

5. Integrate the skills matrix into your director renewal process.

  • Shape the recruitment strategy based on the requirements. Revisit the skills matrix when considering director nomination, appointment or election.
  • Revisit your skills matrix after your annual strategic plan review. Pay attention to seismic shifts in external factors. Typically, you should not need to complete a robust revamp every year; however, there may be specific criteria that merit a deeper dive.

Ask WATSON

Hey WATSON, when looking for directors based on the skills matrix, do we want a master of none or an expert in a given field?

You may find it impossible to find one director who ticks all the boxes on your matrix. And you should! A board is a team, and the board as a whole should possess the necessary skills and attributes to effectively govern the organization.

Depending on your needs and strategy, the board should have a balance of broad skills and deep subject matter expertise – in a relevant area. If significant organizational transformation is on the horizon, someone with extensive experience in change management is probably of greater value than four directors who have a basic understanding of managing change. On the flip side, a complex public company is probably better served by several directors with governance experience versus one governance expert.

Unlike skills and experience, attributes are an all-director requirement. Be very clear on the culture you want and seek candidates who reflect your values.

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Drill Down for Impact

Be prepared to invest time and energy to get it right. Dialogue, discuss, and debate until the words on the paper paint a vivid portrait of the future directors seated around the table. When drilling down, consider the following:

Less is less: Vague descriptions create recruitment nightmares. When defining skills and experience, dig deeper to add qualifiers that spell out what you actually mean.

  • Do you need someone involved in setting strategy on mergers?
  • What expectations do you have around leadership?
  • What does “significant experience” mean to your board?

Titles can be misleading: a VP of a 10-person business most likely will not have the same experience as a VP of a large multi-national conglomerate.

Generic categories are meaningless: create descriptions so that the board understands what they are looking for. Without descriptors, the skills and experiences on a skills matrix are open to interpretation and misalignment.

  • For example, does “legal” mean just any lawyer? Or is it an employment lawyer? A securities lawyer? Is international experience a must?

Director expertise is not always equal: four years of experience on the TELUS board is not the same as four years on the board of a local not for profit. Consider an aerospace company looking for a board member with experience managing an airline – getting a VP from a regional carrier with three prop-engine planes is not the same as an Air Canada operations leader.

Sample Skills Matrix

SKILLS AND EXPERIENCES

Board members should collectively possess these skills and experiences

CATEGORY CRITERIA
Executive Leadership President, Chief Executive Officer or senior officer of a business who has:

  • experience leading an organization of similar complexity to ABC
  • led strategic planning of an organization of similar complexity to ABC
  • demonstrated success developing and implementing a big-picture strategic vision
  • demonstrated the ability to work with senior staff and has built a strong senior leadership team
  • experience reporting to a board of directors
Financial Expertise An individual with a CPA designation who has:

  • capital markets experience
  • had investment management responsibility
  • experience with complex financial statements and agreements
  • had responsibility for financial reporting and analysis in a large organization (e.g. CFO, Comptroller or Treasurer)

PERSONAL ATTRIBUTES

All directors should exhibit these personal attributes

CATEGORY CRITERIA
Independence of Mind
  • is unfettered from speaking their mind honestly and openly on all issues
  • is able to separate ABC’s needs from other loyalties or interests
  • is comfortable taking an opposing or alternate view
Team Player
  • commits to the role of the board as a whole
  • works to resolve issues and find areas of consensus
  • treats others in a respectful and supportive manner

DIVERSITY

Various diversity criteria should be considered. Potential categories are described below

CATEGORY GOALS/NEEDS
Gender Female
Age Directors under the age of 50

Dust off your old skills matrix and bring it to life. You’ll be surprised at the conversations it can spark, the revelations it can surface and the clarity it can bring to your board’s renewal processes. It is the perfect example of where people and process collide.

 


Pink Shirt Day 2018 at WATSON

March 1, 2018

Posted in: WATSON Views


Leadership Lessons From the Intentional Chair

February 1, 2018

Posted in: WATSON Views

February 1, 2018
Letter #3

Dear Chair,

Every board is unique. Sector, organization, strategy and directors around the table guarantee no two boards are alike. Yet, when it comes to leadership, many new chairs may have more in common than they think. There are aspects of the chair role that consistently trip up new chairs. And although effective leadership can be learned in a classroom, the best teacher is experience.

Here are five leadership challenges Intentional Chairs have learned the hard way. Learn from their experience in the boardroom.

1. Thinking you need to have all the answers

No one expects you to know it all overnight. In fact, experienced chairs are the first to admit that they don’t have all the answers, even after years in the role. A great chair doesn’t need to have all the answers, but they do need a process to get to the right outcome. Intentional Chairs have confidence in their ability to seek good information but also understand that they are part of a team and can rely on their team for information, support and guidance.

Tips:

  • Reflect on what you need to know and know who to ask – whether it’s the former chair, CEO, committee chairs or experienced chairs in your network
  • Establish norms around two-way dialogue between meetings with key governance players to ask questions and test ideas
  • Engage external experts when needed to fill out knowledge gaps

2. Doing things the way they were done before

It’s easy to take on a chair role and pick up where your predecessor left off. They did a fine job, so if it ain’t broke, don’t fix it… right? Not quite. Even if things aren’t broken, part of the purpose of chair renewal is to bring in a fresh perspective and new ideas. At the same time, great chairs don’t come in and do things differently for the sake of change.

Tips:

  • Observe, listen and reflect; use this knowledge to make thoughtful, informed (and sometimes incremental) changes. Take meeting materials for example: ask directors what worked well and didn’t work well in the past and propose changes to address past issues and get to the root of what the board wants to accomplish with its limited time.
  • Set goals for the upcoming year that will help the board move forward in a focused manner

3. Being too forgiving

Bad board behaviour and dysfunction can quickly spiral and spread. Chairs don’t always have the luxury of settling into the role before dealing with these challenging issues.

Tips:

  • Work with the board to set clear expectations for directors
  • Put your emotional intelligence to the test and proactively address issues and diffuse damaging dynamics before they emerge

4. Not ending a conversation when it has run its course

One of the trickiest things to balance as a chair is allowing fulsome discussion and dialogue without letting a conversation continue past the point of diminishing returns. People need to feel heard. As chair, you need to ensure all issues, risks and alternatives are sufficiently fleshed out and all questions are satisfactorily addressed. However, when the conversation starts to go around in circles, it is time to call it.

Knowing when to end the conversation is only half the battle. The other half is knowing how to end the conversation. Conversations usually conclude in one of two ways – a decision is made (preferably by consensus) or a specific plan is put in place to do something before making a decision. The latter may involve assigning a person or group to investigate the issue further, gather more information, or develop options and recommendations, within a specified timeframe.

Tips:

  • Guide the conversation and apply your insight to focus or broaden the discussion, as needed
  • Practice active listening to summarize multiple points of view
  • Use the further investigation option sparingly, as it can be an easy way to avoid making a hard decision

5. Not understanding the line between governance and operations – in practice

Most directors understand the line between governance and operations in theory; however, it is one of the most difficult practices to apply in the boardroom.

The chair must be cognizant of the line and play a role in drawing the line. Intentional Chairs leverage the line and their relationship with the CEO to foster an “us and us” connection between the board and management. Great chairs don’t shy away from talking about the line, recognizing its dynamic nature and the need to shift the line in different circumstances.

Tips:

  • Clarify expectations, respective roles and guiding principles for the board – management relationship and within the board itself
  • Don’t be afraid to acknowledge when the conversation is too operational and needs to be brought back up above the line

And so brave chair, I hope these words of wisdom and tips will make your transition to your new role easier. You have taken on a great challenge. Don’t be afraid to make a mistake, the best learning comes from experience. The missteps of new chairs stem from human nature and are mitigated through experience and the humility and confidence that come from it. But, with any luck, being alert to these common challenges will prepare you to face them boldly and confidently if and when the time comes.

 

Yours sincerely,

The Intentional Chair

The Intentional Chair is the collective voice of over 30 exceptional chairs who kindly shared their insights, thoughts and experiences with WATSON in support of our passion for real, practical governance learning.

Hone your chair skills and join your peers at one of WATSON’s 2018 Chair with Intention™ courses


Timing is Everything:
Seven Factors Effecting CEO Transition Timing

January 24, 2018

Posted in: WATSON Views

In the world of CEO succession planning, timing is everything. Unless your board is clairvoyant, pinpointing the perfect moment to change CEOs is almost impossible, but there are practices that can get you close. It all starts with a shift in board mindset from the wait-and-see to the optimal timing approach.

Determining the optimal CEO transition time is the board’s most important and most difficult job. And the sad fact is, most boards don’t think about it enough, and almost completely ignore it in the early days of CEO tenure or when performance is strong. Too many boards wait for the CEO to make the first move and declare a retirement date, and even when given considerable lead-time, boards unconsciously fail to put the best interests of the organization ahead of the CEO’s.

Consider the case of the CEO who respectfully gives her board two and a half years retirement notice. The board takes that as their order ticket and gets to work. There is plenty of time to determine the skills needed, hire a search firm, develop internal candidates and hone their interviewing skills. But what makes two and a half years the optimal time? Boards need to stop blindly accepting the CEO’s timeline and start asking, “what is the best time for the organization?”

The Optimal Time for CEO Transition

Early in their tenure, new CEOs come up the learning curve and perform well for a few years or maybe many years but eventually, performance falters, if only because the CEO is 100 years old.

The optimal time to change out the CEO is just before the decline. But what are the chances that your board will achieve this optimal timing? Highly unlikely. The board’s job is to constantly look into the future, predict the arc of the curve and tackle transition before performance drops. There are situations when the CEO leaves while performance is still strong, as in the case of unforeseen illness, retirement or in pursuit of another opportunity. The board has less control in these scenarios. But in many cases, strong organizational performance lulls boards into a state of succession planning complacency and early warning signs are dismissed. As one director reflected after a later-than optimal transition, “yes, performance slipped a little and a couple of directors had some criticisms, but with his long track record, the board remained confident that he was doing a good job.”

It is not unusual for boards to avoid the touchy topic of transition until poor financial results or a failed initiative jolt them out of complacency. Too often it takes them a long time to see the decline in the CEO’s performance, reach consensus to terminate the CEO and then orchestrate the departure. The optimal timing approach requires your board take a different tack.

Seven Factors Effecting CEO Succession Timing

Your board may never achieve optimal timing, but it is your job to get as close to optimal as possible. Consider these seven factors when your board thinks about the timing of CEO succession.

Major factors that get you in the ball park

1. CEO Wishes When does the CEO plan to leave? The CEO may be reluctant to share this too far in advance for fear of being labeled checked out and / or lacking in commitment. They may also be afraid of the permanence of the decision – What if I change my mind? What if this speeds up the process? Ask the CEO what they have in mind, even if it is a range of possibilities. For a CEO approaching retirement, financial matters may be a driver. Be cognizant of the CEO’s Personal Financial Calculator, the ongoing tally of the value of their pension, incentive plans and vesting of shares or options that might shape their preferred retirement date. For younger CEOs, understand that they might want to have one more gig or other challenges in their career. Do you really want a 48-year old CEO to stay in the same role for another 15 years?

2. CEO Performance Invest in a robust CEO performance evaluation. Ensure the full board is engaged in the process and has the opportunity to provide feedback. Examine how well the CEO is doing separate from the organization’s performance. Understand the strengths and the weaknesses of the CEO and weigh carefully if this adds up to the right leader at this time.

3. Future Demands In concert with strategy development, assess the CEO’s mandate for the future. How is the role changing? What will the CEO need to do in the future? How might that differ from the past?

Minor factors that may tweak the timing a little sooner or a little later

4. Major Business Event Adjust CEO transition timing in light of major events within the organization or the industry; for example, an upcoming IPO, completion of a massive capital project or completion of a major negotiation.

5. Chair Succession Stagger Chair and CEO turnover so both roles don’t turn over within 18 months of each other. Allow time for the incumbent to learn from the outgoing party and secure organizational continuity.

6. Key Executive Turnover Identify potential turnover of key executives and either accelerate or slowdown the CEO or the executive’s transition timing. Key roles may vary based on industry, for example a COO in a mining company or Chief Investment Officer in an asset management company. Pay particular attention to the role of CFO.

7. Readiness of Successors If your board has identified potential internal successors, factor in the sweet spot for transition. Be prepared to delay or accelerate transition. For example, if a high potential candidate needs one more year to be ready, consider asking the CEO to stay on for a year, or, in the case of a potential candidate flight risk, move up the transition timing.

At least once a year, have an explicit discussion with your board about the optimal succession timing, without the CEO present. This will get your board started on the right foot and make it more likely to achieve the best leadership for today and for the future.

Hey WATSON, if boards know they should plan for transition, why is there so much reluctance to engage in the succession planning process?

The simplest answer: it is darn hard work complicated by personal relationships. Loyalty clouds perspective. Too often we hear boards lament, “we owe it to him” or “who are we to take her out of the job?” For many boards, avoidance is easier than awkwardness. In the absence of annual discussions, boards fear giving the wrong impression to the CEO when they start talking about succession. “If we are talking about it, the CEO might think a change must be imminent and it’s time to call the search firm”. This is a myth. Regular ongoing dialogue is a sign of healthy succession planning, not a failure in leadership.

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The optimal timing model is neither a prediction nor a locked-in plan. It is a powerful focal point for planning. It influences the list of potential candidates and their development plans. It changes the board’s work plan. It changes what gets communicated to whom. Over time you may change the focal point, but it will set the pace and keep the board on track.

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