Chapter 3 - Board director demographics and attributes - 2nd and 3rd quadrants

Question 1

What are the 3 C’s related to board demographics quadrant?

Answer 1

• Capacity - should the individual be allowed to be a board director
• Capability - is the individual director capable of being a director on the specific board?
• Connections - what social capital does the director bring?

These 3 C’s allow us to see what the director looks like on paper like a CV

Question 2

What are the 3 C’s related to the board attributes quadrant?

Answer 2

• Competences - role specific, general leadership of emotional intelligence and leadership style. 21st century resilience, learning agility, cultural intelligence and digital intelligence
• Commitment and attributes (personality, mindset, motivation and derailers)
• Character (ethics)

Question 3

What elements relate to capacity?

Answer 3

• Fit and proper test - measure of whether a director is legally allowed to function on a board – good mental and physical health and appropriate qualifications. Think of Premier League, NHS and FCA (additional rules) - Louis Tomlinson unable to takeover Doncaster Rovers due to lack of financial background
• External commitments - concept of overboarding - FRC Guidance on Board Effectiveness relates to case study

Question 4

What did the Henley Business School and McKinsey studies find on research on capacity?

Answer 4

Henley Business School: the maximum number of board-level positions should be no more than 4. However, the research also found that it was not uncommon to find up to 13 in the US and 14 in South Africa

McKinsey: high-performing directors give more commitment on average (40 days) compared to moderate/low performing boards (19 days). High-performing directors also invested an extra 8 days on strategy

Question 5

What elements relate to capability?

Answer 5

• Independence - provision 10 of the Code
• Professional capital - director’s work-related credibility - years of industry experience, number of boards served, qualifications, etc
• Financial expertise
• Technical expertise
• Diversity - to represent stakeholders effectively

Question 6

What did Woolley (2008) find on the greater the proportion of experts a team has?

Answer 6

The greater the proportion of experts a team had, the more likely it was to disintegrate into non-productive conflict or stalemate.

There is robust evidence that individuals with higher than average IQ or technical skill can actually reduce team and board effectiveness due to the weaker team dynamic that their inclusion often induces

Question 7

Give examples of social capital that a director can bring.

Answer 7

• Professional networks – including their specific board committee membership networks as well as broader work-related links
• Alumni networks
• Social networks – family, broader acquaintances and those within their class structure

BoardEx (2014): the more connection one has, the more valuable the director may be

Question 8

What does the FRC Guidance on Board Effectiveness say in relation to overboarding?

Answer 8

• The role of chair, in particular, is demanding and time-consuming, multiple roles are therefore not advisable. - - The nomination committee may wish to consider whether to set limits on the number and scale of other appointments it considers the chair and other NEDs may take on without compromising their effecitiveness.

This could help deal with concerns on shareholder concerns relating to overboarding.

Question 9

As board structures and board demographics take more of a technical perspective. What aspect does board attributes focus on?

Answer 9

Behavioural aspects - such as competences, character, commitment and attributes

Question 10

What are the traditional types of competency required by directors?

Answer 10

• Specific board role competence - to be chair, ED, NED, etc
• General leadership - can you function beyond monitoring?
• Emotional intelligence
• Leadership style

Question 11

According to Daniel Goleman, what are the two dimensions of emotional intelligence and what are the four components which arise from this concept?

Answer 11

Daniel Goleman: the ability to identify and manage one’s own emotions, as well as the emotions of others

These two dimensions create four components:

1. Self-awareness
2. Self-management
3. Awareness of others or empathy
4. Social skill or influence

Question 12

What does research show us on emotional intelligence?

Answer 12

• Research shows that those with average emotional intelligence significantly outperform those with the highest IQ around 70% of the time.
• 90% of top performers have high emotional intelligence
• emotional intelligence is responsible for 58% of job performance

Question 13

In the 21st century, we have moved away from the ‘Great Man’ theory. Name some theorists who define the modern day ‘leadership style’

Answer 13

Jim Collins – Level 4 v Level 5 – Level 4 – short term success, but upon their exit, companies do not sustain performance Level 5 will sustain high levels of performance over time (think Trump vs Biden)

Goleman: the two most effective leadership styles are ‘visionary’ and ‘coaching’ as opposed to ‘directing’ (do as I say) and ‘pacesetting’ (do as I do)

Follett (1947): Leadership is not defined by the exercise of power, but by the capacity to increase the sense of power among those led > best form of leadership are the least ‘ego based’ and most ‘other-referenced’

Question 14

What are the competencies expected of a 21st century leader?

Answer 14

21st century:
- resilience
- learning agility
- cultural intelligence
- digital intelligence

Assertion that we are living in an increasingly challenging working environment, one that combines volatility, uncertainty, complexity and ambiguity (VUCA).

Question 15

How has the American Psychological Association defined resilience?

Answer 15

the process of adapting well in the face of threats or significant sources of stress.

Question 16

What is learning agility?

Answer 16

This relates to an individual’s ability to adapt at pace. This is through behaviours such as innovating, performing, reflecting and risking via PESTLE

Although, there is one derailing behaviour which is ‘defending’ i.e. being clsoed and defensive and is a predictor of lower leadership performance

Question 17

What are cultural and digital intelligence?

Answer 17

Cultural intelligence – measures ones ability to emphasise with broad groups of people who are part of different national or corporate cultures

Digital intelligence – leaders ability to be curious and have a mindset that is open to the changes that digital offers, to be fast-paced, to apply an agile ‘fast-fail’ mentality, to be open and collaborative, to be experimental, to be well networked, and to use social working practices.

Question 18

What did the Development Dimensions International research find on CEOs in their use of social digital tools?

Answer 18

• 89% more likely to empower others
• 52% more compelling in their communications
• 46% more influential, and cultivated networks
• 36% better than their non-social peers

Question 19

According to the acronym OCEAN - what are the five Big 5 personality styles?

Answer 19

• Openness to Experience
• Conscientiousness
• Extraversion
• Agreeableness
• Neuroticism

Director conscientiousness (commitment), agreeableness and openness to experience is positive related to board performance.

Question 20

According to Carol Dweck of Stanford University, what are the types of mindset?

Answer 20

Fixed or growth.

If one has a fixed mindset around intelligence – tendency to avoid challenges, give up easily, ignore useful negative feedback > individual will plateau early and achieve less than their full potential

If one has a growth mindset around intelligence – leads to a desire to learn and therefore a tendency to reach a variety of more positive outcomes > reach full potential

Question 21

Research says that it is not about the quantity of motivation which you have to influence board performance, but the quality. Name the four basic fundamental human needs to provide the necessary motivation:

Answer 21

1. Autonomy – the need to feel that you have personal control of your destiny
2. Belonging – the need to feel a connection with others
3. Competence – the need to feel that you are improving and playing to your strengths
4. Meaning – the need to feel a broader purpose for the behaviours that you are performing

Question 22

There are also some derailers which can have a negative impact on board attributes. This can be assessed by the narcissistic personality disorder test via the SPECIAL acronym.

Answer 22

• Special (believes he or she is special and unique)
• Preoccupied with fantasies (of unlimited success, power, brilliance, beauty, or ideal love)
• Entitlement
• Conceited (grandiose sense of self-importance)
• Interpersonal exploitation
• Arrogant (haughty)
• Lacks empathy

Question 23

What did Professor Roger Steare’s research show on ethical character?

Answer 23

• failures in character lead to high-risk behaviours and ethically dubious decision-making
• leaders make decisions at work significantly more through an ethic of obedience while suppressing their ethic of care
• in the boardroom, this translates to being robotically compliant with dehumanised decisions
• however, average ethic of care in life outside of work in these leaders was actually higher than the global average

Question 24

What did Guner et al find on financial experts on a board?

Answer 24

financial experts on corporate boards do not necessarily improve shareholder value – increased presence of financial experts on boards increases the size of loans and the frequency of outside founding and larger public debt issues