The evolution of the Boardroom

As with everything in the natural world, businesses need to evolve and adapt to their surroundings in order to survive. This starts in the Boardroom.

At the top table a number of changes have occurred over the years, and just like in evolution, those that have worked have set new precedents. This has varied from the composition of these Boards, the splitting of the roles of Chairman and Chief Executive, to where they set their focus and how they operate. Furthermore, when you add to this the impact of corporate governance and regulatory change, the dynamics in the boardroom over recent years have been under the spotlight more than ever.

Boards are smaller and nimbler. In the 1960s it wouldn’t be unusual to have a Board of 20 directors – the majority being executives. However, since then, and even compared to last year, Boards have shrunk.

Jan Hall a Founding Partner of JCA Group says: “Today, when it comes to Board size, there is a generally-accepted view that ‘small is beautiful’. But for big global Boards, there comes a limit to how practical ‘small’ is, because there needs to be the right skillsets around the table and there needs to be the right people to Chair and populate the various committees. Therefore, size has to be balanced with need.

“Typically it is thought that the number of individuals on a Board ideally shouldn’t exceed 12 and that the closer this number is to eight, the better.” This is supported by statistics from Spencer Stuart’s UK Board Index 2013 which shows an increase in the number of Boards with fewer than 11 members.

The survey of the 150 largest listed companies by market value shows that in 2013 over three quarters (76%) of Boards had fewer than 11 directors – up from 69.3% the year previous. This is due to a reduction in the number of Boards that have 12-14 people on them (18% down from 24.7%) and an increase in the number of Boards with 9-11 people on them (53% up from 47.3%). The most popular size of Boards is nine people (20%).

The reduction in the total number of people sitting at the top table is largely due to the balance of Executives and Non-Executives - the former now usually only consists of the CEO and the CFO. This allows for less people to sit on the Board while maintaining a balance that is in favour of independent directors.

Boards have actively been engaged in the gender diversity debate. Lord Davies’ third annual review of Women on Boards shows that the proportion of females on FTSE 100 Boards is now 20.7%. This has increased encouragingly since 2011 (12.5%). And with steady growth over the last few years, the FTSE 100 may meet Davies’ target of 25% for 2015. Hall says: “The drive to encourage companies to put women on their Boards progresses at pace and there doesn’t seem to be any ‘let up’ in the appointment of female directors.”

However, diversity in the boardroom is evolving to a much broader notion, one that also encompasses a range of experiences, demographics and cultures. Boards are continually evolving in order to survive external hostilities. “Boards are very conscious of the reputational issues for them as a whole, and as individuals. But equally, I think Boards are clear that they need to make the right decisions for their businesses and not be driven to the wrong decisions by the media.” And so it would seem individuals must have a stronger resilience to external pressures in the modern-day organisation.

As external pressures and composition have provoked changes over time, a more rapid response is needed when it comes to technology. Demand for directors who have specific expertise is high. Big Data, social media and mobile computing are just a number of game-changers that have surfaced quickly and require expertise to handle them. Technological advancements affect all sectors and by their very nature there won’t be anyone who has experience in tackling any challenges they might bring. Regulatory, risk and strong credentials across the finance function have also been in high demand.

Therefore this means that Boards need to possess the right skills to be able to continuously adapt and evolve if they want to survive in the future.

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