3.2 Board demographics

Question 1

After the focus on board s_______ in Chapter 2, board d____________ factors are the most often used as a shorthand for predicting good g__________.

Answer 1

structes
demographic
governance

Question 2

What are the 3Cs in the board demographics quadrant of the 11Cs model?

Answer 2

Capacity
Capability
Connections

Question 3

What are the two “capacity” tests of whether a person should be allowed to be a board director?

Answer 3

Fit and proper test - are they legally allowed to function on a board, are they of good health, and do they have the neccessary qualifications?

External commitments - do they have the time to fulfill the role (overburdening)

Question 4

The key factors when considering whether a director is “capable” of being a director on a specific board are:

• i___________ - can the director represent shareholder interests?
• professional c_________ - the director’s work-related credibility
• f__________ expertise - all directors must have a grasp of finance
• t__________ expertise - the director must have some relevent expertise
• d________ - the areas of diversity that one director may bring.

Answer 4

independence
professional capital
financial expertise
technical expertise
diversity

Question 5

What do we mean by “social capital” when considering a directors “connections”?

Answer 5

Their professional network, including professional, alumni, social class connections, etc.

Question 6

What factors might cause a director to fail the fit and proper test?

Answer 6

Filing for bakruptcy, being prohibited by law from being a director, financial failings, conflicts of interest, mental and physical health, good character, previous convictions.

Question 7

According to recent research by Henley Business School, what is the maximum number of board level posiitions a director should hold?

Answer 7

4

Question 8

The 2003 Higgs Review offered what solution to potential director overboarding?

Answer 8

NED retainer letters should clearly state the required number of days of work per month and ask directors to confirm they can meet these requirements.

Question 9

Provision 10 of the UK Code desctibed factors that could impair director independence. List 5 of these factors.

Answer 9

• employee of the company in last 5 years
• material business relationship with the company in last 5 years
• has recieved/recieves additional remuneration other than a director’s fee
• close family ties with advisers, directors or senior employees
• holds cross-directorships or has significant links with other directors
• represents a significant shareholder
• has served for more than 9 years

Question 10

What is the argument against director independence?

Answer 10

Several studies have shown no link between independence and board effectiveness, and suggest that executive directors are likely to have more knowledge of the organisation and may be move motivated to help the organisation succeed.

Question 11

What factors might be factored into calculation of the professional capital of a director?

Answer 11

Years of industry experience
Number of boards served
Current executive roles
Cumulative years spent on boards
Highest level of education achieved

Question 12

Which is the most sought after type of expertise for a director?

Answer 12

Financial expertise

Question 13

Why is financial expertise considered important for board directors?

Answer 13

From a business monitoring perspective, directors should at least have a good grasp of the basic mechanics and key financial reports provided by management.

Question 14

Technical expertise is considered valuable to boards. However, Wooley (2008) found that the greater proportion of experts a team had, the more likely it was to…. what?

Answer 14

disintegrate into non-productive conflict or “stalemate”.

Question 15

Why is diversity important to a board?

Answer 15

The capability of a board to represent various stakeholders, including minority voice, is dictated by director diversity.