Quite well, it turns out. Over 90% say their Board has an effective chair, an environment that encourages early escalation of issues and frank/robust conversations, clear accountabilities, confident and supportive relationships, and zero tolerance for poor behaviour or the domination of a single member.
Almost all NEDs indicated that their Board asks ‘should we’ rather than ‘could we’ when considering if proposed actions are the right thing to do.
Having said that, almost 80% of directors say their Board has now introduced more ‘deep dives’ into areas of specific interest or concern. Plus half are spending more time connecting-the-dots and contemplating emerging and over-the-horizon matters.
Also, close to half of the NEDs indicated their Board is improving the agenda setting process, spending more time with relevant executives ahead of meetings, and building in more structured reflection time without management present.
NEDs appear to be split down the middle on the need to reset expectations about their time commitments (48% Yes; 47% No).
Those who believed that expectations would need to be reset towards spending more time on Board governance activities gave a range of reasons.
“The time required is increasing given the increased expectations of detailed review, setting the tone from the top, etc.”
“Yes, if they are to get a better understanding of the business and continue learning about the industry and governance.”
“Yes, to ensure consideration of all stakeholders, more time is required for review and discussion.”
"Yes, because it is essential that directors have increased exposure to the company’s operations.”
“Yes and a director really needs to be doing study tours and getting out and about to understand the culture of the organisation.”
Moreover, a number of those who responded that expectations did not need to be reset, acknowledged that these expectations were that time commitments could increase.
“The answer to this question depends on the circumstances at the time and what matters the Board is dealing with - as a director, you do what needs to be done in the circumstances at the time.”
“The focus should be on the effectiveness of a director rather than time committed. Effective directors usually commit sufficient time to ensure that they are across issues and are well prepared for the meetings.”
Directors were also evenly split as to whether there should be a limit on the number of ASX companies a director can serve on.
Those in the ‘No camp’ expressed a number of similar explanations.
“Not all companies require similar effort eg a large financial institution requires far more time than a smaller, less regulated entity.”
“A ‘one size fits all’ approach is not appropriate here as individual capacity and circumstances can vary enormously.”
“Everyones’ capacity is different - what is important is that each director in the roles they take on must do the job and do it well - if not then the Chair should act to deal with that lack of participation or contribution.”
“The number of Boards depends on the complexity of the company’s business, location (travel requirements) and its reporting timetable. It is easier to be a director of companies which have different year ends.”
Of those in the ‘Yes camp’ that nominated a maximum number of Boards which a NED should act on, the average was between three and four. That average did not include Chair roles, which many suggested effectively equate to two non-Chair NED roles.
On average, NEDs on financial services Boards spend slightly more time (4.4 days per month) performing their duties compared to their peers in other sectors (3.8 days per month).
While the majority of NEDs (81%) say their most recent Board evaluation was balanced and fair, the remainder (19%) indicated it was slightly too positive or failed to recognise reasonably significant shortcomings in the Board’s performance. Interestingly not one respondent felt the evaluation was overly critical of the Board’s performance.
Some highlighted the importance of using carefully-selected third parties to ensure evaluations are robust:
“Experienced Board reviewers who are focused on the broader ecology of the dynamics within the Board room and between the Board and management are critically important.”
“Well facilitated and reported external Board reviews are more important than ever. The rule of thumb of having an external review every second year should probably be extended to be every year, even if the intermediate years are more about providing a forum for candid discussion and airing of views.”
Partner, PwC Australia
Tel: 612 8266 3034
Senior Executive Advisor, Risk Consulting, PwC Australia
Tel: +61 421 056 456
Partner, People and Organisation, PwC Australia
Tel: +61 (2) 8266 2420
Partner, Strategy& Australia
Tel: +61 (2) 8266 1299