Most directors I speak to feel that they were appointed based on having the right skill set to meet a current gap in the board composition or replace a retiring director.
Typically, institutional investors want more information on board skills.
Many feel that there needs to be better disclosure of the relevant skill sets of any new appointment. Outside of a press release or a short bio, there often is very little detail on a director's skill set mix. Most new directors feel that their appointment is based on past success, reputation and experience.
But does a short career "blurb" really provide enough information for all investors to make an informed decision about the skill set of a director across board, company and personal competencies? Can small investors realistically be expected to evaluate each director's skills, how those skills fit together, and gaps in the board's skill base relative to company strategy?
There are always expectations, but few boards provide skills matrices in their annual reports that break down director skills, quantify them and relate those skills back to corporate strategy and director tenure.
Few boards inform investors (in writing) if they need to address a gap in their directors' collective skill set. Investors are usually told after the event when a director is recruited that a certain skill was needed.
Why have big company boards been slow to improve the communication of director skills to investors?
Maybe they assume investors can easily form their own opinions. Maybe they prefer a conservative approach that does not overshadow management when communicating skills. Maybe the thought of breaking down skills across several areas, even quantifying them, is too intrusive for directors like the one above who believes his career record stands for itself. Maybe some boards simply have not given the skills issue - and its communication - the attention it deserves.
Whatever the case, it seems like a lost opportunity.
I have no doubt retail shareholders would respond favourably to boards that publish a skills matrix in their annual report and take the process seriously.
Companies publish a breakdown of director skills into three areas covering:
• Governance competencies
• Behaviour competencies
• Technical competencies or skills.
Most shareholders just want to know what skills the board believes it needs to govern the company, oversee strategy and appoint the CEO. They want to be sure these directors have those skills or addressing the skill gaps.
The information needs to be clear, upfront and accurate so they can form their own opinion on whether certain skills are lacking or are over-represented in other areas.
Most of all, the skills information must be dynamic; the board's skill requirements should evolve as company strategy evolves or as market conditions change. The global financial crisis is a case in point: it has surely changed the skills required by some boards, yet many investors would not know how the board views its current or required director skills set.
If done well, a skills matrix should provide real information for shareholders to evaluate board skills and a point of reference to better understand director appointments and resignations when based around skill requirements. And, it would give shareholders more confidence that boards are not just talking about skills, but making a more transparent attempt to improve them.