Board Composition

When discussing board composition, the following topics should be considered:

Board Structure and Size

Board structure and size relates to how a board is structured to enable it to complete its work.  

Colin B Carter, Chair of Geelong Football Club and co-author of ‘Back to the Drawing Board’, noted the following in relation to board structure and size.

“.... We believe there is no such thing as a universally applicable, ideal board structure. A particular structure that meets the unique needs of one board might be completely inappropriate for another. Indeed, top performing companies around the world have a wide variety of governance structures, with different leadership models, different board sizes and varying committees.

.... Our own experience supports the notion that smaller boards are more effective than larger ones. This premise is also supported by a great deal of research into the functioning of decision-making groups. Smaller numbers are easier to involve in discussions, and such meetings are easier to lead.”

He goes on to explain...

“What factors should influence board size? This is derived from the skill set required for the board to do its job. Boards should strive to be as small as they can be. What do we really mean by small, a maximum 10 directors; preferably 6-8. Key roles and expertise by the board can be achieved through committee structures that bring in relevant experts. There is much innovation in this area but there is a need for further innovation in the future.”

A director on a board with too few members can experience isolation, limited input, interaction with a narrow field of vision, and pressure to reduce his/her independence. A director on a board with too many members may find it very difficult to participate in the board’s proceedings, to confront the organisations’ challenges and to build agreed solutions. 

Current trends see the size of boards reducing to 7-9 persons to enable effective decision making. In the not-for-profit sector and smaller rural organisations, traditionally board size is larger with 12-15 members; however, this may create issues regarding decision making. 

The size of the board may be dictated by the type of organisation. In the case of those covered by a constitution, the constitution will state the number of directors required on the board. This is so in the case of public entities, where legislation/terms of reference determine the number of directors and the approval process for appointments and resignations.

Terms of Office

Term of Office relates to directors’ tenure on the board or the length of time they can hold a position on the board. 

Defining specific terms of office for directors is recommended as an effective method for providing new blood on a board and removing directors who are no longer contributing.

There are two arguments regarding terms of office:

• setting the length of time directors should be on a board (3 X 3 years) means that the board remains fresh and enthusiastic for future achievements
• setting a length of time for serving on a board is poor practice, as the effectiveness and contribution of directors should be the deciding factor, not length of tenure. It can also be argued that it can take a director 12-14 months to learn the business of the organisation and to be truly effective in their role as a director.

Deciding what form of tenure best suits your organisation is a matter of choice. Methods of deciding terms of office may include:

• checking your constitution. It may include a tenure clause. Public entities’ terms of office are dictated by legislation and terms of reference.
• referring to board policy: This can often describe the terms of appointment and tenure.
• evaluating the board. Ensure a regular and rigorous process of board evaluation is undertaken which recognises the significant contributions of its members. board members need to understand that election onto a board requires continued and good contribution to its successes. 
• considering the location of the organisation. In remote locations, the terms of office are sometimes dictated by the availability of others to fill the director roles.

Committees

The board needs to decide the appropriate number and type of committees to carry out specific aspects of its work. A board can either delegate specified power to the committee or can require any recommendation of the committee to be approved by the board. The committee chair can a board member or director but is most often not the chair. 

Committees may be permanent or respond to temporary need. Some boards will, by nature of their structure, be required under relevant legislation to have specified committees. For example, the Corporation Act requires audit and risk committee.

When used appropriately, committees can provide a mechanism for directors to focus in more detail on specific areas. This may be appropriate when items require more time for consideration and oversight, or where specific technical expertise is required.

Committees work most effectively when they have Terms of Reference. The terms of reference should define the task and timeframe of the committee and stipulate the accountability and evaluation mechanisms for the committee’s performance.

Committees are an innovative way to bring, by way of ex-officio members, expert advice to the board. Ex-officio members may also provide an opportunity for enthusiastic community members to be involved in a project or governance work that sparks their interest.

Committees can be run at a time that allows better access for its members. Committees have a defined operating period, allowing members to make a meaningful contribution, and make a commitment for that period 

By engaging persons who may not have considered a board position on an organisation, committees may also be used as a way to create a succession plan for the board.

Director Competencies

Director competencies encompass two distinct areas: technical competencies and behavioural competencies. Technical competencies are a director’s technical skills and experience (what you know and are able to do). Behavioural competencies are the director’s capabilities and personal attributes (how you apply what you know and your personal and interpersonal skills).

Directors Australia (directorsaustralia.com) notes that: 

“It is critical that a board is composed of directors who collectively have the skills, knowledge and experience to effectively govern and direct their organisation. The ideal skills set for a board will depend on the type, size, stage and strategic direction of the organisation as well as the nature of its business and the industries or sector in which it operates.”

The skills required of directors can be broadly categorised as:

• Professional skills (that is, skills directly relevant to performing the board’s key functions)
• Industry (Sector) skills (that is, skills relevant to the industry or sector in which the organisation predominately operates)
• Contemporary Skills (For example; connect to the Community, Cyber Security, Workforce, ESG) 
• Behaviours, Styles and Attributes (for example leadership style, Attributes such as curious, emotionally intelligent) 

It is important to note that each individual director is not expected to hold all professional, industry, contemporary or behavioural skills. Rather, these skills should be held collectively by the board (and its committees).

Boards also often assess whether they consider each identified skill is ‘essential’, ‘desirable’, or ‘purchasable’ by the board (meaning that the skills can be ‘brought’ or ‘bought’ into the board as and when required. For example, specialist human resource or legal advice maybe required from time to time but not necessarily required on an ongoing basis. This process can further assist boards in determining priorities when filling board vacancies.

In contrast to professional, industry and contemporary skills, all directors should have certain personal attributes or behavioural qualities that are generally considered desirable in order to be an effective director. (Refer to the Skills Matrix Fact Sheet for more information.)

Board Diversity

If all the directors on a board come from a similar background, there is a risk that the board will approach issues too narrowly and fail to adequately consider and evaluate alternative ideas or options. 

Boards composed of directors with different perspectives, experience, backgrounds and views in relation to issues affecting the organisation may contribute to better problem solving and decision-making, foster greater innovation, and enhance board effectiveness and performance (The Global Network of Director Institutes – www.gndi.org). 

Current trends suggest it is advantageous to choose a wide range of board members to capture a wider range of skills and experience. Age, gender, nationality, business experience, educational background, specialist industry experience, indigenous and Cultural and Linguistic Diversity (CALD) status are all criteria that may be considered. 

Maintaining a skill-based approach, coupled with board diversity, fosters a board culture which encourages divergent views and robust communication.

Selection Process

Getting the right combination of skills, experience and personal traits is an important part of ensuring an effective board. It is important to get a broad cross-section of talent because the skill-set of the board is not individual skills but the collective wisdom. In order to identify skills required the board can undertake a skills analysis (capturing results on a skills matrix) to identify what skills are required, what skills the board currently has, and what skills are needed. Current trends are that the process of selection of board members is becoming more formal and professional.