7.6 Board Member Skills

Highly effective boards usually include a mix of directors with the expertise and experience to fulfill the essential oversight and advisory roles of the board. Directors' responsibilities are expanding, and the number and complexity of the issues they have to oversee are increasing. Some of the most critical skills needed by board members are:

  • Senior Leadership Experience. Directors who have served in senior leadership positions, such as serving as the CEO of another company, are able to provide special insight and guidance. These individuals generally possess proven leadership qualities and the ability to identify and develop those qualities in others. They also bring a practical understanding of organizations, processes, strategy, risk management and the methods to drive change and growth.

  • Public Company Board Experience. Directors who have served on other public company boards can offer advice and insights with regard to the dynamics and operation of a board of directors, the relations of a board with senior management, and oversight of a changing mix of strategic, operational, and compliance-related matters.

  • Financial Expertise. Knowledge of financial markets, financing and funding operations, and accounting and financial reporting processes assists directors in understanding, advising, and overseeing capital structure, financing and investing activities, financial reporting, and internal controls.

  • Industry Expertise. Experience in the company's specific industry is useful in analyzing a company's research and development efforts, competing products and strategies, and the various market segments in which they compete.

  • Global Expertise. Most organizations are global organizations with offices in several countries. Directors with global expertise can bring useful business and cultural perspectives that relate to many significant aspects of a company's business.

  • Gender and Ethnic Diversity. Boards work best when the viewpoints of all segments of society are represented. Historically, both female and minority board members have been underrepresented. As a result, there is a significant effort in the U.S. and mandated requirements in some other countries to increase the number of both female and minority candidates.

Most companies construct a skills matrix to determine what additional board skills are needed when a new director is recruited. For example, company on which the author served developed the following skills matrix.

In addition to making sure a board has the right skills, experience and backgrounds of directors, well-functioning boards make sure that board members attend all meetings, are actively engagement at meetings (including mutual respect for each other, trust, ability to dissent and candor), are accountable and well prepared and that they contribute to board dialogue and the company. Board members who are not fully engaged, either because of a lack of attendance (all board members are required to attend at least 75% of all meetings), preparation, or background are usually replaced. Every board must have an annual evaluation of the board that assesses the effectiveness of the board and identifies weak board members who need replacement. According to the 2013-2014 NACD Governance Survey, boards in the U.S. conduct the following types of board evaluations:

In addition, boards of directors often establish different kinds of tenure limiting policies to insure that there is sufficient turnover of board members. Again, according to the NACD Governance Survey, in 2013-14 companies had the following types of tenure-limiting policies:

For those that had mandatory retirement age limits, the following were the most common ages:

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