TOWARDS DYNAMIC GOVERNANCE 2014
European Corporate Governance Report
DEEP BUSINESS KNOWLEDGE
They must understand the company’s commercial DNA – how it makes money, its sources of competitive advantage, its business model, its competitors, its vision, its strategy. Without this knowledge the board is fl ying blind and can’t hold the executive management properly to account.
This sounds obvious and straightforward. But, accumulating knowledge and information provides a number of challenges. The breadth of knowledge required of board members is large and expanding. They need company and industry knowledge, but they must also understand the team and leadership dynamics of the organisation.
This means that directors need highly attuned antennae; an ability to tune into the internal and external context of the business. Curiosity is a prerequisite – “Inspect don’t expect,” advised one interviewee. And, extracting the right information requires determination. It is worth noting that board members cannot automatically rely on the information they receive from within the boardroom.
Curiosity is a prerequisite – inspect don’t expect
Any debate is only as good as the quality of the information and knowledge at work. Chairmen and boards must possess deep insights into the business.
All of this requires that non-executive directors put extensive eff orts into really knowing the company. Increasingly, they are expected to do so. (Members of boards in the UK’s fi nancial services sector have to be approved by the Financial Conduct Authority). Expectations are now much greater. But, there is clearly a limit to what a non-executive director can be expected to do. It is important that the line between the responsibilities of non-executives and executives is maintained.
In the long-term this is likely to lead to slightly larger boards to provide greater diversity. While there remains no common view as the optimum size of a board, over the last decade the average number of directors per board has remained largely static at 12.
At the heart of constructive debate is the relationship between the executive team (the insiders) and the non- executive directors (the outsiders). This needs to be both clearly understood and properly managed. The roles should be well demarcated, boundaries need to be drawn
4 Towards Dynamic Governance 2014 – European Corporate Governance Report
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