Background and commentary

The ideal board of directors: what attributes need to be present?

Luxembourg board of directors: what attributes are needed?

Companies with strong corporate governance standards serve their customers and shareholders, contribute more to their communities, and provide better places to work. Yet each board of directors is only as strong as the quality and commitment of each of its members, and their ability to do their job correctly. If we were to build the ideal board, what attributes would the team have?

A recent survey by the Diligent Institute pointed to 15% out-performance by the best run companies over those with governance deficits*. This is just one example of the benefits of having efficient boards. No surprise then that global and local regulators are increasingly looking at how each board of directors operates. For example CSSF Circular 18/698 specifically highlights the need for strong boards in the Luxembourg fund industry as part of the fight against money laundering.

Yet standards and best practice guides only go so far. Boards must probe and give constructive criticism of management policy, and fundamentally it is a question of personal outlook and personality of the individuals, and how they can process relevant business intelligence. What qualities are needed?

Cognitive diversity – A board of directors with people from different backgrounds is better able to challenge closed group-think, as well as understanding the challenges of Luxembourg’s cross-border business models. So as well as ensuring that the board has sufficient women, that people from different cultures are represented, and with a range of professional experience also on hand. Each board member must also have the bravery and humility to question their own, long-held assumptions. Supplying the team with quality data also helps.

Intellectual curiosity – Directors have a duty to seek deeper, broader understanding of their company, its market and social context. New directors have a sharp learning curve to negotiate, and they need help from colleagues and to be given the tools to build solid knowledge foundations. This process never ends, so a board of directors needs to build on past decisions while being open to new options.

Independence – In the process of becoming acquainted with a business and the people who run it, it is a basic human instinct to identify personally with their challenges and culture. This is fine, as long as it does not put one’s independence at risk, and thus make one less able to offer constructive criticism. With this ensured, the board of directors can properly question structures, policies, and potential risks on an on-going basis, as well as keeping a close eye on events as they unfold.

Tech-savvy – Much of modern business strategy hinges on technological development. Without understanding of these options and challenges a board of directors might be able to offer little strategic guidance. Directors need training and to have a magpie-like attitude to potentially useful information. They need to then be able to share this securely with colleagues, many of whom will not live in Luxembourg. Therefore, the implementation of tools such as Diligent’s products are needed for secure and efficient collaboration on board tasks. 

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Conscientiousness – It is vital that directors are well prepared for their duties, whether these be regular quarterly meetings, sub-committees or ad hoc gatherings. This means fully digesting the board pack, with reference to the minutes and matters arising from previous meetings. This requires access to relevant documents and often requires on-going discussion with fellow board members and the chair, sharing experiences and working together.

Integrity – A director should only accept a mandate if they are sure they can add value for the organisation. As well as expertise, this can be a question of time management. Attending several meetings in a short space of time can be a strain for even the most able. Integrity also comes into play when a board of directors has to decide on matters which might push ethical boundaries: everything from the product range to the strictness of regulation compliance checks. If a director feels their integrity has become over-stretched for whatever reason, it might be time to step down. Business intelligence tools help ease this burden.

Team work – Directors must advocate their point of view as strongly as they can, but once a decision is taken all members of the board of directors must support this position in the public sphere. Teamwork should be central to making the right decisions, with individuals keeping in touch and sharing information as they develop their ideas. Every effort should also be made to attend meetings in person. This is not always possible, and to add value boards must ensure they have adequate technology in place so that their absent colleagues can participate to the full remotely. The secure remote communication tools within Diligent products help when it is not present to make the trip in person.

Some of these traits are obligatory, while others need to be sufficiently well covered across the board. The most fundamental requirement of all, though, is awareness of the scale of the task of sitting on a board of directors, and how on-going personal development is required to deliver the best outcomes.

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