GovernWith Blog

Unlocking Effective Director Induction Strategies: Nurturing Board Excellence

The journey of appointing a new director to a board marks a pivotal juncture, but the significance of this milestone extends beyond recruitment. Once the ideal candidate is secured, a robust induction process becomes imperative to foster seamless integration and enhance board effectiveness. In this article, we delve into the insights of Fi Mercer, a governance expert, as she shares key strategies for orchestrating successful director induction.

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Laying the Foundation for Successful Director Induction

Fi Mercer highlights the often overlooked yet critical aspect of director induction. Surprisingly, over 44% of directors express uncertainty or dissatisfaction with the induction process, underlining the substantial potential for improvement. Induction, as Fi emphasises, presents a golden opportunity to initiate a meaningful engagement with newly appointed directors.

Building upon the notion of engagement discussed by Andrew Leahy earlier, Fi draws parallels between engaging the workforce and engaging directors. Just as an engaged workforce propels organisational success, engaged directors are more likely to contribute meaningfully to board dynamics. To achieve this, the induction process should transcend the mere dissemination of organisational information; it should become a platform for directors to grasp the core values, strategic direction, and risks of the organisation.

Data-Informed Director Induction Approach

Fi Mercer shares insights from a compelling research initiative conducted in 2019. In this study, directors were divided into two groups: those who underwent a tailored induction process based on their skills matrix results, and those who did not receive such an induction. The results were staggering. Directors who had the benefit of a skills matrix-informed induction exhibited a remarkable 50% increase in their ability to contribute effectively to the board. They displayed a deeper engagement with the organisation's purpose, values, and strategy. Additionally, their enthusiasm to remain on the board soared, and they were more aptly placed on the right board committees.

The study's findings underscore the transformational potential of a data-driven induction approach. Tailoring the induction process to align with a director's skills and attributes not only accelerates their integration but also enhances their capacity to steer the organisation forward.

Revealing Essential Strategies for Successful Director Induction

Fi Mercer's insights provide a roadmap for boards aiming to revolutionise their director induction process:

1. Personalised Engagement: Induction should be more than a generic orientation. Customising the process to cater to a director's skills, strengths, and the organisation's unique context ensures a more relevant and impactful onboarding experience.
2. Embracing Values and Purpose: Beyond disseminating facts, induction should immerse directors in the organisation's ethos. By instilling a deep understanding of values and purpose, directors can align their contributions with the organisation's mission.
3. Fostering Risk Awareness: Equipping directors with insights into the organisation's risks is vital. A robust understanding of potential challenges empowers directors to make informed decisions that safeguard the organisation's interests.
4. Leveraging Skills Matrix: Utilising a skills matrix to inform the induction process allows boards to strategically align a director's expertise with organisational needs, amplifying their effectiveness from the outset.
5. Strengthening Board Committee Placement: Tailored induction improves directors' suitability for specific board committees, ensuring they contribute meaningfully to focused areas of board responsibility.

In Conclusion

Director induction, a linchpin in the board's journey, requires thoughtful orchestration to unleash its transformative potential. The insights provided by Fi Mercer shed light on the pivotal role induction plays in director engagement, board dynamics, and organisational success. By embracing data-driven approaches and customising the induction process, boards can propel their directors towards becoming catalysts for innovation, strategic alignment, and sustained excellence.

Navigating Cyber Incidents: Strategies for Directors and Timely Response

In the interconnected digital realm, cyber incidents have become an unavoidable challenge faced by businesses of all scales and sectors. In this article, we explore the insights shared by David Rudduck on effectively managing cyber threats. From containment and eradication to business resumption, forensics analysis, legal considerations, and customer notification, we delve into the crucial phases of handling cyber incidents. Additionally, we'll address the importance of involving boards, directors, and planning timelines in a comprehensive cyber incident response strategy.

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Containment and Eradication: Halting the Cyber Attack

When a cyber attack surfaces, the initial step is containment and eradication. This process mirrors halting bleeding in a medical emergency, where businesses must swiftly arrest the threat's progression and eliminate the attacker's presence from the environment. Successful containment and eradication prevent further damage, safeguard data, and minimise the attack's impact.

Business Resumption: Swift Recovery Strategies

Following containment and eradication, the focus transitions to business resumption. Critical systems take precedence during this phase, as they're essential for restoring operations. Efficiently prioritising systems ensures that businesses achieve partial operational status, minimising the economic repercussions of downtime.

Concurrent Steps: Forensics and Root Cause Analysis

While containment, eradication, and business resumption proceed, forensics and root cause analysis run concurrently. Forensics scrutinises the threat actor's activities within the environment, particularly significant for sectors handling sensitive data. Healthcare and other industries grappling with personal information must ascertain whether data access triggered regulatory mandates. Legal experts provide valuable guidance in ensuring compliance and tailored regulatory advice.

Balancing Transparency: Effective Customer Notification

Notification poses a formidable challenge post-incident. Many businesses grapple with the intricacies due to inadequate data governance. Under the Privacy Act's requirements and specific data storage obligations, notifying customers about potential breaches becomes complex. Rudduck underscores the importance of informed notifications, offering a comprehensive approach based on meticulous data analysis. Informed notifications empower affected individuals to take prudent actions.

The Role of Legal Consultation: Navigating Complexities

Legal guidance is instrumental in navigating post-incident challenges, particularly in the realms of notification and regulatory compliance. Enlisting legal partners well-versed in cyber incidents and regulations ensures proper communication, mitigating reputational damage and legal ramifications. Experienced legal teams can provide insights into crafting effective communications that resonate with stakeholders and the media.

Managing Expectations: Timely Communication and Planning Timelines

A successful incident response entails aligning stakeholder expectations, including boards and customers, with realistic planning timelines. Effective communication strikes a balance between the urgency of updates and the time needed for thorough analysis and remediation. Transparent communication fosters trust while maintaining accurate reporting.

Involving Boards and Directors: A Comprehensive Approach

Cyber incidents underscore the crucial role of boards and directors. Their strategic oversight is pivotal in crafting and implementing robust incident response strategies. Empowered directors with a nuanced understanding of cyber threats contribute to better decision-making during incidents.

Conclusion

As the threat landscape continues to evolve, businesses must prioritise cyber incident preparedness. An adept incident response strategy, encompassing containment, eradication, business resumption, forensics analysis, legal considerations, and transparent customer notification, is essential for minimising damage and protecting both operations and reputation. Furthermore, involving boards, directors, and planning timelines elevates the overall cyber resilience of an organisation.

Unlocking Effective Director Recruitment Strategies: Insights from Industry Experts

Securing the right directors for a board can prove to be a formidable challenge, demanding meticulous planning and strategic finesse. In this article, we delve into the wisdom of seasoned professionals, Rebecca Murphy and Fi Mercer, as they share expert guidance on ensuring prosperous director recruitment. Their insights provide a roadmap for boards seeking to navigate the complex landscape of director selection.

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Laying the Foundation for Successful Recruitment

Rebecca Murphy underscores the criticality of clarity when embarking on the recruitment journey. Identifying the pivotal qualities that can augment the board's decision-making prowess becomes paramount. This entails delineating non-negotiable attributes that align with the board's overarching vision and strategic objectives. Formulating a comprehensive position description at the outset serves as a bedrock for a well-structured recruitment process.

Rebecca highlights that the recruitment process is, in essence, a dual evaluation. While candidates are under scrutiny, they too are assessing the board's alignment with their aspirations. To resonate with impassioned candidates who are attuned to the board's purpose and vision, articulating a compelling value proposition is crucial. Conveying the institution's core values, strategic trajectory, and the transformative role a director can play lays the groundwork for a meaningful connection.

Furthermore, Rebecca stresses the importance of transparency regarding role expectations, time commitments, and the overall recruitment protocol. Providing candidates with comprehensive insights ensures mutual understanding, fostering an atmosphere of transparency and mutual respect.

Diversify Recruitment Channels for Optimal Results

Broadening the scope of recruitment avenues emerges as another pivotal element. Tapping into school networks, leveraging referrals, engaging professional director recruiters, and utilizing online platforms like Women on Boards and the Australian Institute of Company Directors heightens the likelihood of attracting a multifaceted array of candidates.

Augmenting Insights with Fi Mercer's Perspective

Fi Mercer supplements the discourse with invaluable recommendations to enrich the recruitment process. She advocates for data-driven decision-making by integrating the skills matrix into the selection criteria. This approach aligns the skills and attributes of prospective candidates with the prevailing board composition. Fi underlines the significance of considering not only professional and sector-specific skills but also the candidate's leadership style and how it complements the existing team dynamics.

Fi accentuates the interview phase as a pivotal juncture. Candidates are not just evaluated; they are also discerning whether the board aligns with their aspirations. Conducting interviews professionally and leveraging tools like the skills matrix not only elevates the board's reputation but also underscores the commitment to operational excellence.

A Culmination of Insights

Masterful director recruitment necessitates meticulous forethought, transparent communication, and a strategic mindset. By heeding the expert counsel of Rebecca Murphy and Fi Mercer, boards can navigate the recruitment terrain with conviction. This approach ensures the attraction of candidates who not only share the board's mission but also contribute holistically to its triumphs.

Unlocking the Potential of Director Induction in the Board Governance Journey

In the intricate world of board governance and the director lifecycle, director induction emerges as a critical, often underestimated component. This article delves into the pivotal role of director induction in ensuring a seamless transition onto a board. Drawing from the insights of experts Fi Mercer and Megan Motto, we explore the challenges and solutions associated with this crucial phase.

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Bridging the Gap in Director Induction

Fi Mercer and Megan Motto concur on a common challenge – despite meticulous planning and professionalism in director recruitment, director induction often falls short of expectations. Alarmingly, a significant 44% of directors express dissatisfaction with their induction experiences, highlighting the urgent need for improvement.

Unpacking the Director Induction Challenge

Megan Motto provides valuable insights into the reasons behind this concerning trend. The issue extends to both boards and incoming directors. Frequently, new directors overlook the importance of investing ample time in understanding the nuances of their roles and responsibilities. This oversight can hinder their ability to make meaningful contributions to the board.

Megan also underscores a fundamental concept: the induction process commences long before a director's official first day on the job. It initiates with the recruitment process itself. How an organisation handles the recruitment phase sets the tone for the director's journey. From the initial email correspondence to the interview process, these interactions not only contribute to shaping the organisation's culture but also influence the director's expectations.

Emphasising the Significance of Early Steps

Megan's perspective underscores that the induction process is not an isolated event; it's intricately woven into the cultural fabric of the organisation. Early steps, such as punctuality, communication style, and follow-up, serve as integral components of the induction process. They establish the foundation for how the director is expected to conduct themselves, interact with colleagues, and engage with the organisation.

Key Insights for Effective Director Induction

1. Commence Early: The journey of director induction starts during the recruitment phase. It is essential to ensure that all interactions and communications align seamlessly with the organisation's values and culture.
2. Effective Communication: Pay meticulous attention to communication with potential directors. Timeliness, language usage, and follow-up significantly influence their perceptions and set expectations.
3. Cultural Harmony: Align the induction process with the organisation's cultural norms and expectations. Directors should feel a sense of belonging and purpose right from the outset.
4. Promote Continuous Learning: Encourage directors to proactively invest time in comprehending their roles and responsibilities before assuming board positions. This proactive approach enhances their effectiveness as engaged board members.

In conclusion, director induction is an indispensable element within the director lifecycle, deserving of paramount attention. It lays the groundwork for a director's journey and profoundly influences their ability to make meaningful contributions. Recognising the significance of early steps and cultural alignment empowers organisations to enhance their induction processes, ultimately fostering more resilient, engaged, and effective boards.

Director Induction: Unlocking the Full Potential of the Director Lifecycle

In the intricate journey of the director lifecycle, director induction emerges as a critical, often underestimated phase. While many organisations excel in certain aspects of induction, there's a broader and more profound process waiting to be explored. In this article, we'll delve into the multifaceted nature of director induction, encompassing the functional story, the unwritten history, the dynamics of relationships, and the value of ground-level insights. Discover why director induction is a pivotal step in the Director Lifecycle From Recruitment to Retirement, and how it contributes to effective planning and governance.

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The Functional Story: A Solid Foundation for Governance

In the director lifecycle, induction often starts with the functional aspects of an organisation. It involves familiarising new directors with the nuts and bolts of the business: its products, services, revenue streams, organisational structure, and governance procedures. These fundamental elements provide a solid foundation for directors to understand their roles and responsibilities.

Unearthing the Unwritten Story: Context for Informed Governance

Beyond the functional aspects lies the unwritten story of an organisation. This narrative explores the evolution of the organisation, its past experiences, and the scars it may have accumulated along the way. Understanding this context is essential because it sheds light on why the organisation operates as it does today.

Past successes and setbacks shape an organisation's culture, influencing its decision-making and strategic approaches. Acknowledging this history empowers directors to make informed decisions that align with the organisation's unique journey.

The Art of Relationships: Navigating the Board Ecosystem

Boards are intricate ecosystems within organisations, with their dynamics and relationships. Director induction involves grasping the different working styles and communication preferences of fellow directors. Building strong relationships with the executive team and understanding how to communicate effectively with the chair are crucial components of a harmonious board environment.

By mastering the art of relationships, directors can navigate the complexities of the board ecosystem, fostering collaboration and synergy among board members and senior executives.

Ground-Level Insight: Getting Hands-On with the Organisation

While board meetings provide a top-level perspective, true understanding often comes from experiencing the organisation at ground level. Directors benefit from spending time in the field, whether it's in a retail store, on the factory floor, or in a healthcare facility. This ground-level insight offers a unique perspective on the organisation's operations, challenges, and opportunities.

Director Induction as a Vital Part of the Director Lifecycle

In the Director Lifecycle From Recruitment to Retirement, director induction holds a pivotal position. It equips directors with the knowledge, context, and insights needed to excel in their roles from day one. This comprehensive induction process contributes to effective planning and governance by ensuring that directors are well-prepared to make informed decisions, build robust relationships, and contribute meaningfully to their organisations' success.

By investing in a holistic director induction program, organisations can elevate their governance practices, enhance board effectiveness, and empower directors to lead with confidence throughout the director lifecycle. Discover the transformative potential of director induction in the ongoing journey of planning and governance.

Mastering Director Transitions for Enhanced Board Effectiveness

In today's intricate board management landscape, increasing intricacies in operational realms have ushered in higher stakeholder expectations. There's a growing belief that director competencies should mirror those in the corporate world. Boards, irrespective of their sector, are now expected to play a pivotal role in risk management, offer strategic guidance to senior management, and lead succession planning initiatives.

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Navigating Director Transitions: Elevating Governance Through Collaboration

The query arises – who monitors the board? Though largely a self-regulated exercise, fostering a strong relationship between the board and senior management can yield superior governance outcomes. This collaboration transforms the board from being a risk to an invaluable asset. When structured and managed adeptly, a board can evolve into a competitive advantage, a desirable feature across various sectors.

In this context, a crucial question surfaces – how should boards navigate director transitions? A holistic response is vital, transcending industry boundaries. Veteran experts, Rebecca and Fi, guide us through the intricate director transition cycle, encompassing stages such as recruitment, induction, development, and retirement.

Proactive Measures for Director Vacancies:

The heart of the director transition cycle lies in its capacity to revolutionise how boards approach vacancies. Rather than reactive actions, foresighted planning is key. It involves projecting beyond immediate needs, aligning incoming directors with the organisation's ethos, culture, and long-term objectives.

Rebecca Murphy advocates for strategic planning as an antidote to director vacancies. Beyond addressing immediate gaps, a proactive stance demands a comprehensive strategy that unites incoming directors with the organisational values and overarching goals.

Embracing Diversity and Skills for a Robust Board:

Fi Mercer stresses the significance of cultivating diversity in board composition. Going beyond skill-centricity, contemporary recruitment demands a broader approach. Directors must possess a profound sectoral understanding, blend professional acumen with modern proficiencies, and encompass environmental, social, and governance skills – crucial for manoeuvring modern governance complexities.

Interestingly, diversity extends beyond skills and sector insights, encompassing leadership styles, behaviours, and representing minority groups. This holistic view enriches board dialogues, nurturing an all-encompassing perspective in sync with the organisation's intricate dimensions.

A Comprehensive Approach to Director Transition Planning:

Embracing the core tenets of the director transition cycle, boards – irrespective of their sector – should anchor their approach in foresight and strategic depth. A proactive strategy anticipates vacancies, aligns incoming directors with organisational objectives, and champions diversity in skills and viewpoints. The cycle's components of recruitment, induction, development, and retirement transcend sectors, fostering effective governance that propels organisations toward sustainable triumph.

In essence, the director transition cycle offers more than just reactive governance tactics. It heralds a paradigm shift that harmonises directors' roles across diverse sectors, elevating them to strategic architects. As organisations navigate the labyrinthine landscape of governance, the director transition cycle emerges as a guiding light, directing them toward a future where boards not only govern but also flourish, shaping their realms with unmatched precision.

Safeguarding Your Organisation Against Ransomware Attacks:

A Comprehensive Guide for Governance and Boards

In the ever-evolving digital landscape, the spectre of ransomware attacks looms large over organisations of all sizes. These malicious cyber threats can have catastrophic consequences, compromising sensitive data, disrupting operations, and causing financial and reputational harm. As ransomware attacks become more sophisticated, it is crucial for governance bodies and boards to take proactive measures to protect their organisations. This article delves into the significance of ransomware attacks, their implications for governance, and strategies to fortify cybersecurity defences.

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Understanding Ransomware Attacks:

Ransomware attacks involve the unauthorised encryption of an organisation's data, rendering it inaccessible until a ransom is paid to the attackers. These attacks often exploit vulnerabilities in systems, networks, and human behaviours. The cost of these attacks extends beyond the ransom itself, encompassing downtime, data recovery, legal and regulatory penalties, and damage to reputation.

The Role of Governance and Boards:

Governance bodies and boards play a pivotal role in safeguarding organisations against ransomware attacks. Their responsibilities encompass setting cybersecurity policies, allocating resources for cybersecurity measures, and overseeing risk management strategies. Recognising that ransomware attacks can have far-reaching implications, boards must actively engage in cybersecurity discussions and decision-making.

Implications for Governance and Boards:

Strategic Integration: Ransomware attacks have far-reaching consequences that extend beyond IT departments. Boards need to integrate cybersecurity considerations into their strategic planning processes. A cyber incident can disrupt operations, erode stakeholder trust, and undermine long-term objectives. Boards must ensure that cybersecurity is part of the overall risk management strategy.

Risk Mitigation: Ransomware attacks represent a significant risk to organisations. Boards need to collaborate with cybersecurity experts to identify vulnerabilities and implement robust risk mitigation strategies. This includes regular security assessments, employee training, and maintaining up-to-date security protocols.

Financial and Reputational Impact: Beyond the financial cost of ransom payments and recovery efforts, boards must consider the reputational damage that a successful ransomware attack can inflict. A breach can erode customer trust, damage brand reputation, and lead to customer attrition. Boards should oversee crisis communication plans and ensure transparency in case of an attack.

Regulatory Compliance: Many industries are subject to strict data protection regulations. Ransomware attacks can lead to violations of these regulations, resulting in legal penalties. Boards need to ensure that their organisations adhere to relevant compliance standards and that cybersecurity measures align with regulatory requirements.

Strategies for Fortifying Cybersecurity Defences:

Multi-Layered Defence: Implement a multi-layered cybersecurity approach that includes firewalls, intrusion detection systems, encryption, and endpoint security. Boards should ensure that cybersecurity budgets allocate resources to these critical components.

Employee Training: Human error remains a common entry point for ransomware attacks. Boards should emphasise the importance of ongoing cybersecurity training for employees. Phishing prevention and proper handling of suspicious emails are crucial aspects of employee education.

Incident Response Plan: Develop a comprehensive incident response plan that outlines actions to take in the event of a ransomware attack. Boards should review and approve this plan, ensuring that it covers communication strategies, data recovery processes, and coordination with law enforcement.

Vendor Risk Management: Third-party vendors can be a source of vulnerability. Boards should assess the cybersecurity practices of vendors and demand compliance with security standards as part of their contracts.

Conclusion:

Ransomware attacks are an ever-present threat that demands the attention of governance bodies and boards. By understanding the implications of these attacks, boards can actively contribute to the development of robust cybersecurity strategies. The collaboration between boards, management, and cybersecurity experts is essential in fortifying an organisation's defences against ransomware threats. Through strategic integration, risk mitigation, and proactive measures, governance bodies can safeguard their organisations and ensure their continued success in the digital age.

Risk Tolerance and Risk Appetite Statement in Governance

A risk tolerance statement is like a compass that helps organisations navigate the risky waters of risk management. It is an important tool that allows organisations to assess their ability to handle risks. Consider it as a test to determine your risk appetite.

Crafting a well-defined risk tolerance statement sets the stage for effective risk management. It establishes the boundaries within which an organisation can comfortably operate, ensuring that risks are neither ignored nor exaggerated. With this foundation in place, businesses can make informed decisions and take calculated risks that align with their objectives.

So, let's dive into the world of risk tolerances and explore how they empower businesses to navigate uncertainty with confidence. Get ready to unlock the secrets behind these powerful statements and unleash your potential for success in achieving your business objectives through effective project survey.

But first, what exactly are risk tolerance statements? And why do they matter? Let's find out in the following paragraphs.

 

Importance of Risk Management and Governance:

Effective risk management and governance are crucial for the success of any organisation. They play a vital role in identifying, assessing, and mitigating potential risks that could hinder the achievement of strategic goals and objectives. By implementing proper risk management practices, organisations can make informed decisions, capitalise on opportunities, and protect their stakeholders' interests.

Identifying Risks:

One of the primary purposes of risk management is to identify potential risks that an organisation may face in its projects. This involves conducting a comprehensive risk assessment to evaluate both internal and external factors that could impact the business and its front staff. By proactively identifying risks, organisations can develop strategies to address them before they escalate into significant issues.

Assessing Risks:

Once risks have been identified, it is essential to assess their potential impact on the organisation. This involves evaluating the likelihood of occurrence and the magnitude of each risk. By quantifying risks through various models and techniques, such as probability analysis or scenario planning, organisations can prioritize their response efforts accordingly.

Mitigating Risks:

Risk management aims to minimize or eliminate potential threats through effective mitigation strategies. These strategies involve implementing controls and safeguards to reduce the likelihood or impact of identified risks. For instance, organisations may establish internal policies and procedures to ensure compliance with regulations or enhance customer service standards.

Compliance with Regulations:

Compliance with regulations is a critical aspect of risk management and governance. Organisations must adhere to applicable laws and industry standards to avoid legal penalties or reputational damage. By incorporating risk management practices into their operations, companies can ensure they meet regulatory requirements while safeguarding their reputation.

Protection of Stakeholders' Interests:

Risk management also serves as a means to protect stakeholders' interests. Whether it's shareholders, employees, customers, or government agencies, all parties involved have vested interests in an organisation's success. Through robust risk governance frameworks that include oversight from committees or boards responsible for managing risks at different levels, organisations can demonstrate their commitment to protecting stakeholders' interests.

Informed Decision Making:

Risk management provides decision-makers with valuable insights and information. By considering potential risks and their potential impact on strategic objectives, organisations can make more informed decisions. This allows them to seize opportunities while minimizing the likelihood of negative outcomes.

Capitalising on Opportunities:

Risk management is not solely about avoiding or mitigating risks; it also enables organisations to capitalise on opportunities. By identifying and assessing potential opportunities, organisations can allocate resources effectively and pursue initiatives that align with their business objectives. Risk management helps ensure that these opportunities are evaluated within a controlled framework, balancing potential rewards with associated risks.

Understanding the Concept of Risk Tolerance:

Risk tolerance is a vital aspect of any organisation's decision-making process. It refers to the level of risk an organisation is willing to accept in pursuit of its objectives. By evaluating potential risks and their impact on business goals, companies can prioritize resources and make informed decisions.

What is Risk Tolerance?

Risk tolerance can be defined as an organisation's willingness to accept certain levels of risk. It serves as a measure of how much uncertainty a company is comfortable with when pursuing its objectives. Different organisations may have varying degrees of risk tolerance based on their industry, size, financial position, and overall business strategy.

Evaluating Potential Impact

Understanding risk tolerance involves assessing the potential impact that risks can have on an organisation's objectives. This evaluation helps identify which risks are acceptable and which ones need mitigation strategies. By considering the potential consequences of different risks, companies can determine whether they align with their risk appetite or if additional measures are required to manage them effectively.

Prioritising Resources

One practical application of risk tolerance is resource allocation. When organisations understand their risk tolerances, they can allocate resources more effectively by focusing on areas that pose higher risks or have greater potential impacts. This ensures that resources are utilized efficiently and that efforts are directed towards managing risks that could significantly hinder the achievement of business goals.

Making Informed Decisions

Another benefit of understanding risk tolerance is the ability to make informed decisions. With a clear understanding of their willingness to accept risk, organisations can evaluate various options and choose those that align best with their desired level of exposure. By considering risk tolerances during decision-making processes, companies reduce the likelihood of taking unnecessary gambles or overlooking critical factors.

Differentiating Between Risk Appetite and Risk Tolerance:

Understanding the Difference

It's essential to have a clear understanding of the terms "risk appetite" and "risk tolerance." While these two concepts are related, they focus on different aspects of risk management. Risk appetite pertains to an organisation's desired levels of risk-taking, while risk tolerance deals with acceptable levels of risk exposure.

Risk Appetite: Strategic Goals

Risk appetite reflects an organisation's strategic goals. It defines how much risk an organisation is willing to take in pursuit of its objectives. This concept helps establish boundaries for decision-making by outlining the level of uncertainty that an organisation is comfortable with. For example:

• A tech start-up aiming for rapid growth might have a high-risk appetite, as it seeks to disrupt existing markets and capture market share.
• On the other hand, a conservative financial institution may have a low-risk appetite due to its focus on stability and security.

By defining risk appetite, organisations can align their actions with their strategic objectives while avoiding excessive or unnecessary risks.

Risk Tolerance: Operational Capabilities

While risk appetite sets the overall direction, risk tolerance considers an organisation's operational capabilities. It determines the amount of risk exposure that an organisation can handle without compromising its ability to function effectively. Factors such as financial resources, expertise, infrastructure, and regulatory requirements influence an organisation's risk tolerance.

For instance:

• A small business with limited resources may have a lower risk tolerance compared to a large corporation.
• An industry heavily regulated by compliance standards may have stricter risk tolerance limits due to legal obligations.

By assessing their operational capabilities and identifying acceptable levels of risk exposure, organisations can ensure they operate within manageable boundaries while pursuing their objectives.

The Synergy between Risk Appetite and Risk Tolerance

Risk appetite and risk tolerance work together as complementary components in effective risk management. While one sets the overarching strategic direction, the other ensures that actions remain within acceptable operational limits. This synergy allows organisations to strike a balance between taking risks and maintaining stability.

By understanding their risk appetite and risk tolerance, organisations can make informed decisions when faced with uncertainties. Here are some benefits of integrating these concepts:

1. Enhanced Decision-Making: Having clarity on risk appetite and tolerance empowers decision-makers to evaluate potential risks against defined boundaries.
2. Improved Resource Allocation: Organisations can allocate resources more efficiently by aligning them with acceptable levels of risk exposure.
3. Strengthened Risk Management Culture: Integrating risk appetite and tolerance into an organisation's culture helps foster a proactive approach towards managing risks.
4. Effective Communication: Clear articulation of risk appetite and tolerance enables effective communication across all levels of an organisation, ensuring everyone understands the boundaries.

The Significance of a Risk Tolerance Statement:

Setting the Boundaries

A risk tolerance statement is more than just a piece of paper; it sets the boundaries for acceptable levels of risk across an organisation. It provides clear guidelines that help decision-makers navigate the complex landscape of uncertainties and make informed choices. By defining what risks are deemed acceptable, organisations can avoid unnecessary exposure to potential threats and ensure they stay within their comfort zone.

Aligning Objectives and Values

Organisations must align their decision-making processes with their objectives and values. A well-crafted risk tolerance statement serves as a compass, guiding leaders towards choices that are in line with their strategic goals. It helps them prioritize risks based on their impact on organisational performance, reputation, or compliance requirements. By incorporating these considerations into the decision-making process, organisations can ensure that they remain true to their mission while effectively managing potential pitfalls.

Effective Communication

In any organisation, effective communication is key to success. A risk tolerance statement plays a crucial role in facilitating this communication by providing a common language for discussing risks among stakeholders. When everyone understands the organisation's stance on risk-taking, it becomes easier to have meaningful conversations about potential threats and opportunities. This shared understanding fosters collaboration and allows for better-informed decisions at all levels.

To illustrate the significance of a risk tolerance statement further, let's delve into each talking point in more detail:

A clear risk tolerance statement provides guidance on acceptable levels of risks across the organization.

Imagine navigating through uncharted waters without a map or compass – you would be lost!  Similarly, without a clear risk tolerance statement, organisations may find themselves adrift. This statement acts as a guidebook that outlines what level of risk is considered acceptable within different areas of operation. It helps employees understand where they should exercise caution and where they can push boundaries within predefined limits.

It aligns decision-making processes with organisational objectives and values.

Every organisation has its unique set of objectives and values that guide its actions. These objectives and values should be taken into account. A risk tolerance statement serves as a bridge between the strategic goals of an organisation and the decisions made on a day-to-day basis. By explicitly stating the boundaries within which risks are acceptable, organisations ensure that their actions are consistent with their overarching mission.

The statement enables effective communication about risks among stakeholders.

Communication is the lifeblood of any successful organisation. Without clear lines of communication, misunderstandings can arise, leading to misaligned expectations and potentially disastrous consequences. A risk tolerance statement acts as a common language for discussing risks among stakeholders, whether they are executives, managers, or frontline employees. It helps facilitate meaningful conversations by providing a shared understanding of what risks are deemed acceptable and what level of risk-taking is appropriate in different situations.

Defining Risk Appetite, Risk Tolerance, and Residual Risk:

Risk appetite, risk tolerance, and residual risk are crucial concepts in understanding and managing risks within an organisation. Each term represents a different aspect of how organisations approach uncertainty and make decisions to protect their objectives. Let's delve into the definitions of these terms to gain a better understanding.

Risk Appetite:

Risk appetite refers to the level of uncertainty or risk an organisation is willing to accept while pursuing its goals. It sets the boundaries for how much risk an organisation is comfortable taking on in order to achieve its desired outcomes. Determining risk appetite involves considering factors such as financial capacity, strategic objectives, regulatory requirements, and stakeholder expectations.

Organisations with a high-risk appetite are more inclined to embrace uncertainty in pursuit of higher rewards. They may be open to exploring innovative strategies or investing in emerging markets with potentially greater returns. Conversely, organisations with a low-risk appetite prioritize stability and prefer conservative approaches that minimize potential losses even if it means sacrificing potential gains.

Risk Tolerance:

Risk tolerance defines the threshold at which specific risks become unacceptable or intolerable for an organisation. It helps determine when risks should be mitigated or avoided altogether. While risk appetite sets the overall tone for accepting uncertainty, risk tolerance provides a more granular assessment of acceptable levels of specific risks.

An organisation's risk tolerance can vary across different types of risks based on their impact on key objectives. For example, a company might have a higher tolerance for market volatility but lower tolerance for cybersecurity breaches due to potential reputational damage or legal consequences.

To assess risk tolerance effectively, organisations often establish criteria that consider factors such as financial impact, operational disruption, legal compliance, reputation damage, and stakeholder perception. By defining these thresholds clearly, organisations can make informed decisions about which risks require mitigation measures.

Residual Risk:

Residual risk refers to the level of uncertainty that remains after implementing risk mitigation measures. It represents the risk that persists despite an organisation's best efforts to reduce or eliminate it. Residual risk is an essential consideration as it helps organisations evaluate whether their risk management strategies and controls are effective in reducing the overall level of uncertainty.

When assessing residual risk, organisations need to evaluate the effectiveness of their existing controls and determine if additional measures are necessary. This evaluation may involve monitoring key risk indicators, conducting periodic assessments, and reassessing risks as the business landscape evolves.

It's important to note that residual risk can never be completely eliminated since some level of uncertainty will always exist. However, by understanding and managing residual risks effectively, organisations can minimize potential negative impacts on their objectives.

Defining Metrics for Risk Tolerance:

Having defined metrics is crucial. These metrics serve as quantifiable benchmarks that help evaluate an individual's or organisation's ability to handle risks.

Financial Metrics:

Financial indicators play a significant role in determining risk tolerance levels. Here are some key financial metrics commonly used:

1. Return on Investment (ROI): ROI measures the profitability of an investment relative to its cost. It helps assess how much return can be expected from taking on a particular level of risk.
2. Loss Thresholds: Establishing loss thresholds is essential for managing risk effectively. This metric sets limits on the amount of loss an individual or organisation is willing to tolerate before taking action.
3. Volatility Index (VIX): The VIX measures market volatility and investor sentiment. A higher VIX indicates higher perceived risks, while a lower VIX suggests lower perceived risks.

Non-Financial Metrics:

While financial metrics provide valuable insights into risk tolerance, non-financial metrics are equally important in assessing overall resilience and adaptability. Here are some non-financial metrics that can be considered:

1. Customer Satisfaction Ratings: Monitoring customer satisfaction levels helps gauge how well an organisation can withstand potential risks related to customer dissatisfaction or churn.
2. Employee Turnover Rates: High employee turnover rates may indicate underlying issues within an organisation that could impact its ability to handle risks effectively.
3. Regulatory Compliance: Adhering to regulatory requirements is crucial for mitigating legal and reputational risks associated with non-compliance.
4. Enterprise risk management: Assessing an organisation's innovation index provides insights into its ability to adapt and stay ahead in dynamic market conditions, while also evaluating the overall risk appetite and appropriate risk assessment.

By utilizing both financial and non-financial metrics, individuals and organisations can gain a comprehensive understanding of their risk tolerance levels and make informed decisions accordingly.

Exploring the Differences between Risk Appetite and Risk Tolerance

Understanding the Basics

Risk appetite and risk tolerance are two crucial concepts in managing risks effectively. Although interconnected, they serve different purposes in guiding decision-making and shaping operational capabilities. Let's delve into the differences between these two terms to gain a clearer understanding.

Risk Appetite: Strategic Objectives

Risk appetite primarily focuses on strategic objectives. It refers to an organisation's willingness to take on risks in pursuit of its goals and objectives. Think of it as the speed limit on a highway; it sets the range within which an organisation is comfortable operating. This concept helps define how much risk an organisation is willing to accept in order to achieve its desired outcomes.

To illustrate this further, consider a company that wants to expand its market share by entering new territories. The risk appetite would determine how aggressively they pursue this expansion, considering factors such as potential losses, competition, and market conditions. A high-risk appetite might lead them to enter multiple markets simultaneously, while a low-risk appetite may result in cautious expansion strategies.

Risk Tolerance: Operational Capabilities

On the other hand, risk tolerance deals with operational capabilities. It represents an organisation's ability to withstand or absorb risks at various levels without compromising its day-to-day operations. In our analogy, think of risk tolerance as your own driving skills and comfort level behind the wheel—how much uncertainty can you handle while still maintaining control?

A risk tolerance statement outlines specific limits or boundaries within which an organisation can operate comfortably given its resources, expertise, and capacity for absorbing potential losses. It helps determine how much risk an organisation can bear without jeopardizing its core functions or long-term sustainability.

For instance, let's say a manufacturing company has identified machine breakdowns as a potential risk that could impact their production schedule. Their risk tolerance statement might specify acceptable downtime limits and establish contingency plans for minimizing disruptions caused by equipment failures.

Interconnected Yet Distinct

While risk appetite and risk tolerance are interconnected, it's essential to understand that they serve different purposes. Risk appetite guides decision-making at a high level, helping organisations set their goals and determine the amount of risk they are willing to take on. On the other hand, risk tolerance influences day-to-day operations, ensuring that risks are managed within acceptable limits.

By having a clear understanding of both concepts and incorporating them into their risk management strategies, organisations can strike a balance between ambition and prudence. This allows them to pursue growth opportunities while mitigating potential losses effectively.

Practical Guidance on Writing a Risk Appetite Statement:

Identify key risks relevant to the organisation's industry and objectives.

When crafting a risk appetite statement, it is essential to identify the key risks that are most relevant to your organisation's industry and objectives. This step allows you to gain a comprehensive understanding of the potential challenges your organisation may face and enables you to develop strategies to mitigate those risks effectively.

To identify these key risks, start by conducting a thorough analysis of your industry. Look into any specific trends or developments that could impact your organisation's operations. Consider the unique characteristics of your business and its objectives. By understanding these factors, you can pinpoint the areas where risks are most likely to arise.

Once you have identified the key risks, categorize them based on their potential impact on your organisation. This categorization will help you prioritize which risks require immediate attention and which ones can be managed over time.

Clearly define desired levels of risk-taking aligned with strategic goals.

A well-written risk appetite statement should clearly define the desired levels of risk-taking that align with your organisation's strategic goals. It serves as a guiding principle for decision-making processes across all levels of your business.

To define these desired levels, first assess how much risk your organisation is willing to undertake in pursuit of its objectives. Consider both short-term and long-term goals when determining this threshold. For instance, if one of your objectives is rapid growth, you may need to tolerate higher levels of risk than an organisation focusing on stability or longevity.

Next, establish specific parameters for each category of risk identified earlier. These parameters should outline acceptable ranges within which decisions can be made without exceeding the defined risk appetite. Be sure to include quantitative metrics whenever possible so that stakeholders can easily understand and measure adherence to the stated limits.

Ensure the statement is concise, measurable, and easily understood by stakeholders.

When drafting a risk appetite statement, it is crucial to ensure that it is concise, measurable, and easily understood by stakeholders. This clarity will facilitate effective communication and decision-making throughout the organisation.

To achieve conciseness in enterprise risk management, it is important to use clear and straightforward language. Avoid unnecessary jargon or complex terminology that may confuse readers during the risk assessment process. Keep the statement focused on the essential points without sacrificing necessary details. This approach helps in identifying appropriate risk levels and determining if a particular risk is low or high.

Measurability is another critical aspect of a risk appetite statement. It allows stakeholders to assess whether their actions are within the defined boundaries. Incorporate specific metrics or indicators that can be used to evaluate risk levels and monitor compliance over time.

Lastly, make sure the statement is easily understood by all relevant stakeholders. Consider their varying levels of familiarity with risk management concepts and tailor your language accordingly. Use examples or analogies to illustrate key points and ensure everyone can grasp the intended meaning.

By following these practical guidelines, you can develop a robust risk appetite statement that aligns with your organisation's objectives, provides clear direction for decision-making processes, and enhances overall risk management practices.

Understanding the Relationship between Risk Appetite and Risk Tolerance

Setting Boundaries: Risk Appetite and Acceptable Risks

Risk appetite and risk tolerance are two crucial concepts that organisations must understand to effectively manage risks. While risk appetite sets the boundaries for acceptable risks, risk tolerance determines specific thresholds within those boundaries.

Risk appetite refers to an organisation's willingness to take on risks in pursuit of its objectives. It serves as a guiding principle that helps define the level of risk an organisation is prepared to accept. Think of it as a spectrum ranging from conservative to aggressive approaches. A conservative risk appetite implies a preference for low-risk strategies, while an aggressive one indicates a higher tolerance for taking on greater risks.

Within this overall risk appetite, organisations establish their acceptable level of risk – the maximum amount of risk they are willing to bear. This level varies depending on factors such as industry norms, regulatory requirements, and organisational goals. Defining an appropriate risk appetite ensures that organisations operate within acceptable limits and avoid unnecessary exposure.

Aligning Strategies with Operational Capabilities

The relationship between risk appetite and risk tolerance is critical for aligning organisational strategies with operational capabilities. By understanding their risk tolerance levels, organisations can develop strategies that reflect their ability to handle potential risks effectively.

For example, consider a technology company with a high-risk appetite due to its innovative nature. However, if the company's operational capabilities do not align with this high-risk approach, it may struggle to implement its strategies successfully. By assessing their internal strengths and limitations, companies can strike a balance between ambition and feasibility when setting their overall risk appetite.

Enhancing Decision-Making Processes

Another benefit of effective coordination between risk appetite and risk tolerance is enhanced decision-making processes throughout the organisation. When individuals at all levels understand the organisation's overall approach towards risks and their specific thresholds within those boundaries, they can make informed decisions aligned with these principles.

This alignment ensures that decisions are not made in isolation but rather take into account the organisation's risk appetite and tolerance. It promotes a consistent risk culture and helps avoid situations where risks are either overlooked or exaggerated.

Downloadable Examples of Risk Appetite and Tolerance Statements:

Risk appetite statements play a crucial role in defining an organisation's approach to risk management. They outline the level of risk that an organisation is willing to accept in pursuit of its objectives. Similarly, risk tolerance statements provide further clarity by specifying the acceptable limits within which risks can be managed. To help you create effective risk appetite and tolerance statements, we have compiled some downloadable examples for your reference.

Example 1: Conservative Approach

• Risk Appetite Statement:
  • We prioritize capital preservation and place a strong emphasis on minimizing potential losses in line with our overall risk appetite and enterprise risk management. Our risk tolerances are set to ensure that we maintain a low risk approach.
  • Our primary objective is to maintain stability and avoid excessive exposure to market volatility, in line with our overall risk appetite and risk tolerances as part of our enterprise risk management approach.
  • We are willing to sacrifice potential returns in favour of maintaining a conservative risk profile.

• Risk Tolerance Statement:
  • We set strict limits on individual investment positions to accommodate different risk tolerances, ensuring diversification across asset classes.
  • The maximum allowable drawdown, which is determined based on risk tolerances, is set at X% as a precautionary measure against significant market downturns.
  • Our risk tolerance reflects our commitment to protecting principal investments even during challenging economic conditions.

Example 2: Balanced Approach

• Risk Appetite Statement:
  • We seek a balanced approach between growth and stability, aiming for moderate returns while managing risks effectively.
  • Our objective is to achieve consistent performance over the long term without exposing ourselves to unnecessary risks. 
    
    
• Risk Tolerance Statement:
  • We understand that short-term volatility is inherent in financial markets, so we allow for moderate fluctuations in portfolio value to align with our clients' risk tolerances.
  • Our risk tolerances are reflected in our maximum allowable drawdown, which is set at Y% to accommodate normal market fluctuations without jeopardizing our long-term goals.
  • While we are open to taking calculated risks, we remain cautious about exceeding our predetermined risk thresholds.

Example 3: Aggressive Approach

• Risk Appetite Statement:
  • We adopt an aggressive investment strategy with a focus on maximizing returns through higher-risk opportunities.
  • Our primary goal is to achieve substantial growth while considering our risk tolerances, even if it means accepting higher levels of volatility and potential losses.

• Risk Tolerance Statement:
  • We have a high tolerance for risk and are willing to accept significant fluctuations in portfolio value.
  • Maximum allowable drawdown is set at Z% to accommodate the increased risk exposure associated with our aggressive approach.
  • Our risk tolerance reflects our confidence in our ability to navigate market uncertainties while pursuing substantial returns.

These downloadable examples can serve as valuable references when creating your own risk appetite and tolerance statements. Remember, tailoring these statements to align with your organisation's specific objectives, risk profile, and industry dynamics is essential. By clearly defining your risk appetite and tolerance, you can establish a robust framework for effective risk management that supports sustainable growth while safeguarding against excessive exposure.

Conclusion: The Significance of a Risk Tolerance Statement:

A risk tolerance statement holds immense importance in effective risk management and governance. By understanding the concept of risk tolerance and differentiating it from risk appetite, organisations can make informed decisions regarding their exposure to risks.

The significance of a risk tolerance statement lies in its ability to define an organisation's acceptable level of risk, helping them align their strategies accordingly. It acts as a compass, guiding decision-makers towards making choices that are in line with the organisation's risk appetite.

Defining metrics for risk tolerance is crucial as it provides measurable criteria to evaluate risks and determine if they fall within acceptable limits. This enables organisations to proactively manage potential threats while ensuring they stay within their predetermined boundaries.

Understanding the relationship between risk appetite and risk tolerance is vital. While risk appetite refers to an organisation's willingness to take on risks for potential rewards, risk tolerance focuses on the specific level of risks that an organisation can tolerate without compromising its objectives.

To gain practical guidance on writing a comprehensive risk appetite statement, organisations should consider seeking expert advice or referring to industry best practices. Examples of well-crafted statements can also be downloaded online for reference and inspiration.

In conclusion, having a clear and well-defined risk tolerance statement is essential for any organisation aiming to effectively manage risks. It provides a framework for decision-making, helps set boundaries, and ensures alignment with strategic objectives. By following established guidelines and seeking professional assistance if needed, organisations can create robust statements that contribute positively to their overall risk management efforts.

Frequently Asked Questions (FAQs):

Q1: How does a risk tolerance statement benefit an organization?

A1: A risk tolerance statement helps organisations define their acceptable level of risks, enabling them to make informed decisions aligned with their strategic objectives.

Q2: What is the difference between risk appetite and risk tolerance?

A2: Risk appetite refers to an organisation's willingness to take on risks for potential rewards, while risk tolerance focuses on the specific level of risks an organisation can tolerate without compromising its objectives.

Q3: Why is it important to define metrics for risk tolerance?

A3: Defining metrics for risk tolerance provides measurable criteria to evaluate risks and determine if they fall within acceptable limits, allowing organisations to proactively manage potential threats.

Q4: How can I write a comprehensive risk appetite statement?

A4: Practical guidance on writing a risk appetite statement can be obtained by seeking expert advice or referring to industry best practices. Examples of well-crafted statements are also available for download online.

Q5: What is the relationship between risk appetite and risk tolerance?

A5: Risk appetite defines an organisation's willingness to take on risks, while risk tolerance sets the specific level of risks that an organisation can tolerate without compromising its objectives. Understanding this relationship is crucial for effective risk management.

Q6: Where can I find examples of risk appetite and tolerance statements?

A6: Downloadable examples of risk appetite and tolerance statements can be found online, providing useful references and inspiration for crafting your own statement.

Q7: How does a risk tolerance statement contribute to governance?

A7: A well-defined risk tolerance statement helps establish boundaries and guidelines for decision-making, ensuring that risks are managed in line with organisational objectives and regulatory requirements.

Please let me know if you have any further questions about risk tolerances!

44% of Directors are not confident their induction process effectively prepares new directors for their role on the Board. A further 54% of Directors are not confident that their Board adequately addresses succession planning. If the start and end of the Director lifecycle are like this – what is the middle like? 

GovernWith’s CEO & Founder Fi Mercer will be joined by special guest Megan Motto, CEO of Governance Institute of Australia to discuss each stage of the Director's lifecycle and their learnings. They will also provide tips on how to ensure Directors have the tools and resources they need to succeed at each stage. 

A life cycle is a series of events bringing something new into existence, whether that’s a life, a product, or a director. The life cycle follows its growth and progression into maturity, eventual critical mass and finally, its decline. 

The stages of the Director’s lifecycle are recruitment, induction, development, mentorship, and retirement. These stages encompass the progression a director goes through over their tenure with a Board and whilst there are some common factors, the length of each stage is unique for every Board and Director. 

Let’s break down each stage: 

 Recruitment 

The first step of any life cycle is important, because without the right foundation being built at the beginning, you’re setting yourself up for failure. Therefore, having the right people on your Board is key to being able to achieve your purpose. Choosing the right Directors is hard, it’s a balancing act between choosing between the people you have apply and the skills, experience, qualifications, and behaviours you need to fill from the Directors departing. Knowing how these potential Directors are going to complement the existing ones, (or perhaps not), is critical to ensuring that the right people are recruited. 

Induction 

44% of Directors (from our governance data insights) are not confident their induction process effectively prepares new Directors for their role on the Board. This is not a comforting statistic for any new Directors who might be looking to join a Board. Having spoken to Directors old and new about what their induction programs looked like, and what works and what doesn’t, we’ve found that having an individually, targeted approach is key. It’s not a good use of time and resources to be educating new Directors on something they are already experts in, nor is it wise to assume that a director already knows something, especially when it is sector related. Connecting a directors induction program to their skills and capabilities is proving to help fast track a director’s confidence, engagement, and satisfaction. 

Development 

We’ve spoken about it at length in previous blog posts, such as Board Skill Sets - New Requirements for a New World , in this new world we find ourselves in when it comes to the skills required on a Board. With this in mind, it’s more important than ever that we’re not only upskilling Directors in the areas that they need, but also in a way that ensures the Board is well rounded. A well-rounded Board has a combination of Sector Specific Skills, Professional skills, Contemporary skills and, of course, Behavioural Skills. Knowing where each Directors areas are for opportunities of development is key for a sensible development plan rather than a scattered, generic approach. Targeted Education relevant to the identified capability gaps is proving to be far more important than the old “one size fits all” Governance Education that used to be rolled out regardless. 

Mentorship 

Whilst this may not be a stage that every Director goes through or spends much time in, it is a vital step to ensure the continuation of their organisational knowledge. Where possible, it is essential that more tenured Directors take newer Directors under their wing. Even something as simple as offering to have a cup of tea pre and post a Board Meeting to go over any items that they may want clarification on, helps build their understanding and confidence and ultimately helps meetings run smoother. What can then also be gained, is that they both bring forward something to the other, the more tenured Directors offer Board experience and knowledge, and the newer Directors can remotivate and remind those older directors who might be feeling stagnant or stuck in their Board roles. It reignites the question – Why are you on the Board? – What is my “Why”? because they have someone asking. 

Retirement 

And finally, after the Director has served their term and is ready for their next step, it’s time to consider their retirement. However, how is a director supposed to be assured that all their hard work will be continued when 54% of Directors (from our Governance Data Insights) are not confident that their Board adequately addresses succession planning. The fundamental piece to understand here is what skills are about to leave the Board, so that you can look for someone with similar skills to replace those gaps. Or it can be used as an opportunity to broaden the skills on the Board and diversify those around the table. 

As we’ve outlined in the life cycle progression above, being a director is a varied position that has five unique stages, each of which have specific requirements. 

 Thankfully, there is also the help of Boardroom Plus to assist with each stage of this life cycle as well. The Individual Director Development program that is now available – it helps people who want to be Directors become more prepared and the Whole Board Governance program that includes features to help with induction, development, recruitment, mentorship, and retirement. 

Book into a demonstration below 

Boardroom Plus

The Evolving Skillset for Directors

The skills needed to be a director is an ever-changing list and in an environment of legislation changes, added media scrutiny and increased requirements to the scope of work required of a director – not matter the industry, it’s getting trickier for Boards to keep them.

Rising Employee Well-being Concerns

Added to this is the stressor of increasing exhaustion and burnout levels throughout every staffing level of the organisation and the struggle to replace staff who leave. A recent Deloitte survey suggests that in their survey of 2,100 employees and C-level executives across the USA, UK, Canada and Australia “nearly 70% of the C-suite are seriously considering quitting for a job that better supports their well-being.”

The Great Resignation

Looking beyond the C-suit, with the great resignation now at our shores, the Bureau of Statistics confirms that there has been an increase in the proportion of workers switching jobs – from a low of 7.5% in 2021 to 9.5% as at February 2022. Compounding this issue is a talent shortage, which is making it harder, taking longer and more expensive to replace the staff that leave. 

The Impact on Boards and Communities

Anecdotally, we’re hearing about this a lot from Boards, CEO’s and Executives who are having long serving staff, executive and Board members leaving and taking their wealth of sector and organisation specific knowledge with them. And especially in the smaller communities where they’ve always had a hard time recruiting for Directors it has become that much harder with the added external pressures. 

A Call to Action

Fi Mercer, GovernWith’s CEO and Founder, has spoken a lot about this over the last 12-months in the Aged Care sector, from the 2021 and 2022 Govern with Care conference, 2021 LASA Aged Services Innovation: Owning the Future Now, however it’s an issue for all Directors and not just those in Aged Care. We believe that it is such as important element that Directors must be aware of an act upon before it’s too late. 

Reimagining Succession Planning

Whilst this situation could be framed negatively, we think that it’s the perfect time to shake up succession planning and director appointments to give both a fresh perspective. With only 46% of Boards in 2021 feeling that they address all levels of succession planning there is room for improvement for all Boards. 

Innovative Approaches to Director Appointments

Apart from a focus on the future skills required for successful Boards there are other aspects to consider for thinking outside the box in terms of achieving director appointments. As companies are getting more creative and flexible in order to attract and retain staff members, Boards should think about doing the same for Board positions where they can. For example, there is an increase in the number of virtual director positions available where Directors who aren’t living in the community but have the skills needed by the Board are able to virtually be a part of the meetings and only travel to in person meetings on occasion. Another example is Boards who are recruiting younger professionals who are interested in becoming part of the Board but need to be upskilled in a particular area. These young professionals are then put onto sub-committees to learn and be nurtured by the more experienced Directors to gain the skills they need. This helps ensure future succession for the Board and gives opportunity to those who might not normally get it. 

Investing in Director Development

Along the same lines, more Boards are offering development opportunities for their directors as well. By organising for their directors to participate in a skills matrix to identify relevant and targeted training opportunities to upskill themselves Boards better able to attract professionals who are still growing their careers rather than at the end of it. 

Building Collaborative Alliances in Governance

Another opportunity that boards should consider is growing their relationships with other boards in the community. These affiliations, especially in areas like health and aged care where there is a real focus on this notion of partnerships, can help to share the load of governance. 

A final question for you to think about heading into the second half of the year - Is your Board looking at the skills, qualifications, experience and behavioural attributes of everyone around the table to ensure that should something happen you’d know the real breadth of skills that were being lost? 

If you want to learn the skills, qualifications, experience and behavioural attributes of your board or for yourself as an individual, register to attend one of our demonstration sessions here 

GovernWith is about to publish our Governance Data Insights Whitepaper for 2021, covering the Top 5 Governance Risks identified in 2021 from our Governance Review and Development Programs. Each year, as part of our commitment to our governance community, we publish our findings to increase the awareness of issues in governance and help provide Board and Councils with guidance on how they can improve and assurance that they are not alone in their governance struggles, whether they undertake their evaluations with us or not. 

Our Governance Data Insights Whitepaper for 2021, covering the Top 5 Governance Risks identified from our Governance Review and Development Programs from 2018 to 2021 has been published. Each year, as part of our commitment to our governance community, for supporting a culture of continuous review and development for effective governance we publish and share these valuable insights.  

This year, our Governance Data Insights Report includes over 450 board contributions in more than 14 sectors, focusing on Corporate Governance & Director skill areas. 

The Top 5 Governance Risks for 2021 are: 

1. Stakeholder Engagement 
2. Strategic Direction 
3. Continuous Review and Development 
4. Risk Management and Compliance 
5. Sector Specific Skills 

With 4 years of data from our growing community the data insights are even more compelling for supporting continuous review and development as key to building effective governance. 

In crafting the Whitepaper Report this year, we decided to look at our data in a new way. Usually, we group the organisations together according to the year that they have undertaken the evaluation (Annual Benchmark). This year we’ve added a twist and grouped organisations together based on the number of the evaluation they’re up to (Number of Evaluation Contributions). 

We found looking at the annual benchmark the results remained relatively static year after year. However, when we sliced the data by number of evaluations contributions, we see collective improvement that isn’t seen in the annual benchmark. It is evident that the pathway to governance improvement is continued annual evaluation, both for whole Boards and Individual Directors.