Assembling an effective board is a challenging exercise. This is especially challenging for organisations with a small pool of prospective board members, even more so when board positions are honorary.
Best practice for assembling an effective board is to have an appropriate mix of skills and experience. This mix depends on the organisation, but would generally encompass:
- Industry experience
- Governance (including previous board experience)
- Risk management
- Human resources (where the organisation has employees)
It is unlikely that one board member would possess all of the requisite skills and experience and it is not necessary to have a board member who is a specialist in each of the above. But collectively, the board should have the appropriate mix of skills and experience for that organisation.
Assembling an appropriate board is a particular challenge where stakeholder groups appoint representatives to a board. In this case, the composition of the board is determined by people external to the board rather than by the board themselves. Therefore, it becomes difficult to ensure an appropriate mix of skills and experience.
The challenges for this type of organisation are exacerbated by the fact that the motivation of the stakeholder representatives could potentially be perceived as to maximise outcomes for the group they represent.
These issues have been addressed by organisations such as the Australian Football League and Football Federation Australia by radically overhauling their governance structures. These organisations appointed boards which were fully independent of the various stakeholder groups. These changes have undoubtedly contributed to the improved outcomes of those two sporting bodies in the period since their governance changes.
An evaluation of the performance and composition of your current board is the best place to start. It should be remembered that this process is about assembling the best board to serve the aims of the organisation as a whole. Any skill/experience gaps should be identified and plans put in place to recruit candidates who possess the required attributes.
If you need assistance in setting up the appropriate board structure for your entity, our team can help. Please speak to your adviser, or contact your nearest Crowe Horwath office for more information.
Malcolm Matthews, Partner – Audit & Assurance