Whilst skills alone are not sufficient to ensure good governance, the experience and expertise of directors is a critical foundation for the board’s ability to discharge its role. As this has become broadly recognised, a range of stakeholders including regulators, investors and proxy advisers are increasingly focused on the topic.
Historically, many boards have struggled with the right level of skill assessment and composition.
On one end of the spectrum, there is risk when the skills matrix becomes a ‘tick-the-box’ exercise. On the other end, there is equivalent risk when the exercise becomes overly prescriptive with a mindset that the board must have skills in all areas and that every gap is equally problematic.
A strong skills matrix should support the understanding of what skills matter most, to ensure that the board is fit for purpose.
So, what are the challenges with building a robust skills matrix and how do you avoid the common pitfalls?
Determining the right skills for your board
Much of the value is in the discussion about the skills the board needs and should prioritise. Ideally, boards should follow a framework that provides some guardrails around this conversation. High performing boards are increasingly using technology to streamline the process and go deeper on skills, with more nuance and context around expertise.
Determining each skill typically includes developing an understanding of the specific practical experience and/or senior oversight required to oversee the organisation. Where is deep experience specifically required on the board? Where might general understanding be enough, in combination with external experts, management support and training? These are questions that need specific consideration given strategy, risk, opportunities and stakeholders.
The benefit of a structured process (which may use software), is that this thinking can happen quickly and in a way that drives consensus.
The challenges of self assessment
Once a matrix is in place, skill self assessment is where most boards start (often using Excel or other spreadsheets). This approach is not without its challenges. Consistency of results is a common issue for many boards. Individuals that under or over-rate their level of expertise can result in an inaccurate picture of director and board capability.
This weakens the ability of the skills matrix to identify potential gaps on the board, support director development and drive board renewal discussions. As a result, boards are either forced to use an inconsistent matrix, or for the Chair to have a number of challenging conversations with directors around the accuracy of their self assessment.
Relative capability exercise
One idea many boards are trying is to start with a relative ranking exercise. The idea here is that you cannot be an expert in everything and must acknowledge your strongest to weakest capability areas. By completing a relative capability exercise, all directors are standardised to the same ‘bell curve’, and are typically in a better frame of mind for providing skills assessment.
The relative ranking exercise can also give the Chair a strong view around where directors see their unique ability to contribute value.
Peer review to calibrate results
In light of peer assessment challenges, completing a peer review of skills is fast becoming the market standard. It’s been shown to increase consistency of results, by helping individuals to self rate more consistently and providing additional data for calibration.
Peer assessment asks directors to assess both their skills and those of the other directors on the board. Importantly, this process will also calibrate newer directors who may lack confidence in their skills, and those who may have skills without broader awareness across the board.
This is a feature that has been highly sought after by Chairs and Directors, keen to add additional rigour to the assessment process.
Completing the assessment is just the starting point
With purposeful calibration to ensure greater consistency of results, boards are finding the skills matrix is far more than a compliance exercise. The most useful skills matrices are those that are not ‘one-and-done’, but are used in an ongoing fashion by the chair and nominations committee to think about the evolution of the board, succession and potential skills gaps. In more and more boards, the sight of a dynamic skills matrix on screen to support the nominations committee is becoming common place.