What makes a Board of Directors a balanced one ?
A Board of Directors has specific decision-making powers and is the main oversight body of a company that can hold management to account. A balanced board has certain characteristics that are quite clear and obvious to all stakeholders. They are
- Uncompromisingly ethical and acting with integrity
- Sufficiently independent from management
- Mindful of all shareholders’ and stakeholders’ interests
- Sufficiently experienced in areas (e.g. markets, products, functions) that are critical to the success of the business
- Sufficiently inclusive and diverse in ways that matter to the success of the business, including gender, age and race
- Compatible personalities, achieving reasonable working functionality without succumbing to group think
So, there are six important dimensions to aim for in order to have a balanced Board of Directors
- Ethics/Integrity
- Independence
- Mindfulness
- Experience and Expertise
- Inclusivity/Diversity
- Personality Fit and Functionality
An easy acronym for these is EIMEIP.
Why does it matter ? How does it help to have a balanced Board of Directors ?
In simple terms, a balanced Board of Directors has a better chance of fulfilling its mandate since it can
1.Become a liability to the business and its prospects if it acts unethically and without integrity
2.More easily hold management to account if it is sufficiently independent from management
3.More easily ensure the company’s direction is consistent with the shareholders’ and stakeholders’ interests, if its members are mindful of these interests
4.Interact more efficiently and effectively with management plus support and contribute management effort’s where appropriate if they have relevant experience
5.Anticipate and appreciate more deeply and clearly opportunities, risks and challenges with the benefit of diverse, inclusive and by extension wider perspectives
6.Maintain better efficiency, effectiveness and responsiveness if it avoids group think and dysfunctionality
How do we ensure our Board of Directors is balanced ?
The individual components of EIMEIP are often assessed by reference to the credentials of individual board members. Compliance with some dimensions are more readily achievable and observable than others. A well functioning Board under the leadership of an effective Chairman, will usually have a Nominations Committee that will be monitoring and reviewing the Board’s own composition and periodically make relevant recommendations. External advisors can sometimes play a role in achieving a balanced Board of Directors.