Following the publication of the Skills for Jobs White Paper, there is now a regulatory requirement for governors and governance professionals to undertake training and development, and to report on the impact of such on the individual, the college, and the sector. So, what is it that we as governors should be focused on?
In my experience, boards are made up of individuals who are highly intelligent, very smart, sophisticated people, often renown and highly respected in their sphere of influence. And yet collectively, such positive traits appear to be no guarantee for effective governance, nor do they appear to mitigate corporate governance failings.
Taking a fairly short trip down memory lane, we encounter numerous governance failings in the corporate, not-for-profit, and indeed the FE sector. A study of these clearly shows a number of themes that played a contributory factor in the demise of these institutions, and provide us with some key ingredients that are fundamental to good and effective governance, whatever the structure of that governance is. I’m going to focus on 3 key areas where had there been more training and development, it’s possible that such could have prevented the failings in governance and ultimately, the collapse of the institution.
Three key areas of knowledge and skills that those on boards need, are:
a. To understand how the business operates
b. To understand the context and sector in which the business operates
c. To understand and practice the art of governance
If we take the Enron case as an example of corporate governance failings, we can see that both (a) and (b) were clearly missing. Jeff Skilling, the CEO at Enron, put together a board consisting of the most eminent persons – ex-vice presidents, Lords, Harvard professors, etc. Yet it took one young, brave, female journalist, who put her hand up and asked the ‘stupid’ question, ‘but I don’t understand how this company is making money’, for it to become clear that no-one on the board understood how the company operated. As it turns out, it was built on a giant fraud. In addition, the non-executive directors on that board didn’t have experience in the energy sector either.
When we recruit to boards, we typically look for subject matter experts in a variety of areas, usually aligned to the strategic plan, and that is right. However, it is a dangerous position for the institution, if its board is made up of individiuals who have expertise in only one area. This severely limits the depth of dialogue and debate and leads to over-reliance on the ‘expert’, hampering the decision-making process. So, whilst we need a breadth of coverage on a board that meets all areas of priority, we also need depth – at least one other person with knowledge of each of those priority areas, giving a strategic and predetermined overlap of expertise and experience (in addition to any diversity measures set by the board).
It is not easy to recruit governors with the ideal fit of skills and experience, and therefore there is a need to train and develop governors, through formal means and/or engagement with the institution, such as link visits and events attendance, in order to ensure there is a sufficient depth of knowledge and skills available.
Whilst the members of Enron’s board sat on over 120 boards between them, many of our governors have not held a non-executive position previously. Therefore, learning the art of governance is a priority. Without either experience or training, it is all too easy for such governors to slip into acting as unpaid consultants in their area of expertise and being overly reliant on other governors’ expertise in areas in which they have no knowledge. Of course, no-one can know everything and that is not the expectation, but the board is a collective decision-making body, where all governors are accountable for the decisions taken by the board, regardless of whether or not they understood or even agreed with the issue. Gaining further knowledge and skills, leads not only to better decision-making and more effective governance, but it is a form of ‘insurance’ every member should be keen to gain.
Making the transition from an executive position to a non-executive position, can be made smoother with support and the gaining of new knowledge and skills. The change from ‘doing’ to ‘enabling’, from ‘leading’ to ‘being the guide on the side’ is not always easy and being able to fully inhabit the role required for governing, takes practice and learning.
Gaining knowledge and expertise in these 3 key areas, enables governors to really focus their inquiries (support and challenge) in areas that will more likely add value, through dialogue, debate, and decision-making, to the management team and therefore ultimately, the institution and its stakeholders.