Where Boards Fall Short

Where Boards Fall Short by Dominic Barton and Mark Wiseman, Harvard Business Review, January – February 2015

There has been quite a lot of comment about the role of Boards of Directors over the past year and there is an interesting piece in the January/February edition of the Harvard Business Review. The authors are the global managing director of McKinsey and the CEO of a major investment board, so both clearly have significant experience of the role of Boards and their contribution. 

Click to see the answer is at the foot of this post.  As the authors say this is shocking.  Other scores are not much better.  Only 34% of those surveyed said that boards comprehended their companies’ strategies and only 22% that they were completely aware of how their firms created value. 

The obvious questions about boards that follow from this are:
- What are they spending their time doing?
- What are they for?

Reading the article reminded me of our post on Tesco in September last year.  Luke Johnson had argued in the Financial Times that many on Tesco’s board had no significant knowledge of their industry, including one member whose career had been spent in government in the Netherlands (a country where Tesco have no operations). 

I then picked up the Sunday Telegraph (11th January) and read Jeremy Warner’s article on the Bank of England ‘So we now know; the Bank wasn’t up to the job’.  The Bank of England is too grand to have a Board; it has a Court, which Warner mercilessly caricatures as a glorified dining club.  The minutes of Bank of England during the years of the financial crisis have recently been published, and they do not make entirely pleasant reading for those closely involved.  Warner argues that many of the members of the Court were entirely unsuited to presiding over a banking crisis or had much understanding over how the macro-economy works. 

Anyway, back to the HBR article.  Possible remedies proposed to improve the effectiveness of boards include: 
      -  Selecting the right people.  Attract people with the right business experience; too many directors are generalists. 
      -   Spend quality time on strategy.  Directors need to spend more time on understanding and shaping strategy. 
      -   Engaging with long term investors.  Boards need to focus on creating long term value.
      -   Paying Directors more.  This should be coupled with serving on fewer boards. 

Whist these points may be valid none are earth shattering. However, the article is well written and well-argued and therefore worth reading.  

Will much change in the next five or ten years?  We will see. 

Chris Goodwin

Answer:  16% of Directors say the boards on which they serve understand the dynamics of their firms industries.