Johto advisors

From our experts

Johto advisors

Is it time to update the Corporate Board?


A look at the board’s practices

When the company is not performing, eyes quickly turn to the CEO. The board and the owners might consider changing the CEO to turn the tide. Sometimes this may help, but the solution may also be in the board’s composition and work. Board may not be fulfilling its responsibilities.

In this case, the owner should review the board more closely. How has it succeeded in recent years? What kind of expertise do members bring to the board work? How has the chairman succeeded in the role? How long have the board members been in their positions?

Different companies, different boards

Since the companies are different, their boards also differ from each other. Family-owned companies sometimes tend to prefer familiar board members. Selecting a member from outside the family and circle of acquaintances can seem at least new, perhaps even awkward. At the same time, evaluating the performance of familiar board members is more challenging: how do you tell a friend that he/she no longer has anything new to contribute to board work?

Public companies, such as those in the energy sector, on the other hand, mostly build their boards on the trustees of the owners. The board’s composition often only includes elected politicians, in which case the board’s operating culture is structured in different way than in the private sector. Board members may lack substance knowledge or board experience of a company operating in a competitive market.

Listed companies have clear governance, and the board assesses its ways of working and performance with support from an external service provider. In this way, the competence of the board members and the work of the board is constantly made visible to the shareholders.

The board’s way of working and performance should be assessed

The board’s work and performance are usually assessed based on a written survey of board members. The annual study surveys the members’ thoughts on how the board’s work has gone and how it has succeeded in its task. However, there must be significant challenges in the board’s operations before those are visible in the survey. Therefore, it may not be the most truthful and effective way to assess the board’s success and performance.

Listed companies regularly use external service providers to assess board work. In this case, the experts interview the members of the board and find out what each member’s competence is, what kind of added value the members bring to the work of the board, what type of group and discussion spirit the board has, and how the chairman of the board carries out his/her duties. These interviews provide a more accurate and objective picture of whether the board needs to reform.

Energy sector companies and family businesses use external partners significantly less frequently than listed companies due to differences in operating cultures and pressures on results. However, using an objective expert could be appropriate if the company’s success is not as expected or the owner has noticed signs that the board could be more functional and up-to-date in terms of expertise.

The limited tenure keeps the work dynamic

Choosing a new board member is always challenging, and the company could benefit from using executive search professionals. For the new member to bring valuable and much-needed expertise to the board, his/her selection must be made carefully. At the same time, it is worth considering the conditions under which a new member will be included on the board.

When choosing a new member, special attention must be paid to his/her skill profile regarding other members of the board. New members must be sought from extensive networks to offer alternatives that complement the board’s expertise. Among them, the person who brings much-needed diversity and adds value to board work with their skills and personality will be chosen.

The activity and dynamism of the board can also be increased by setting a limited tenure for the members. For example, a period of five years could shape up the work because there is a clear time frame, after which to discuss whether the member could still contribute.

Tips for ensuring high-performance board

  • Agreed tenure period clarifies working. When a new member is elected to the board, he/she is assigned a specific tenure, after which his / her work is assessed.
  • The upper age limit strengthens the bond to working life. The longer the board members have been away from working life, the harder they must work to keep up with the changes taking place in the corporate environment.
  • Assessing the board by external professionals. Reviewing and assessing the board’s ways of working and performance at regular basis is good. A professional can see if the composition needs changes.
  • Professional help in finding new members. When you want to make the board as versatile and active as possible, it is worth looking for new members from extensive networks.
Olli-Pekka Vaara

Copyright 2024 © Johto Advisors