This was an article in the FT in May 2013:
There are times when those of us who live non-exec lives wonder whether we really make any difference at all. And then we all remember the ABN Amro fiasco. What on earth were the NEDs of RBS and Fortis doing? They weren’t stupid people and none of us is infallible when it comes to risk, but it’s not unreasonable to wonder why they didn’t challenge their CEOs over the deal.
Hindsight is a beautiful thing, but where were the Non-execs who oversaw the collapse of HBOS? How did they miss a failure that in the end had to be bailed out to the cost of £20.5bn? And, in the sector where I have been a Chair for the last six years, Higher Education, we look back at the catastrophic failure of the governing body at London Metropolitan University in 2009, which ended up with it having to repay £36.5m to the funding council.
These failures are a non-exec’s worst nightmare. And avoiding them is the point of us.
The biggest trial that any Board faces is to find a way of challenging the Executive in a collegiate yet rigorous way, constantly negotiating the line between governance and management. And, although rules can help, this is not fundamentally a question of process. It’s a matter of pursuing the purpose and integrity of the organisation above the personal discomfort that can arise from differences of opinion. It requires a degree of emotional intelligence to navigate the human relationships. Challenging people is difficult. It is easier to be swept along.
When I became Chair of the Council at Sussex University, it’s fair to say that the governance was not working well. There was little that was reliable and consistent about the information coming to the Council. And decisions were not dependably carried out. Consequently the Council leant too far in, distrustfully wanting to become too involved in the detail. I had to get it back to flying at 30,000 feet and only occasionally coming down to 1000.
Pre-1992 University Councils are oddly constructed. Ours, which is fairly typical, has 25 members. 15 of them are Independents, 2 are the VC and the deputy VC, 6 are elected academics and the remaining two are the President of the Students Union and a representative of the professional (non-academic) staff. There is huge potential for the confusion of provenance with role. So my first task was to try and get it to operate as a single body, each member behaving as an individual Trustee. For the first two years I had a programme of phone calls with each member before each meeting. At 12 hours a time it was arduous. But it gave me the chance to get to known their concerns individually, to know where they might be coming from in debate and to help them express what they wanted to in a way that was strategic and useful. It also gave them a chance to understand that I was only interested in chairing the Council where we reached collective decisions, based on our agreed strategy as individual trustees. There was to be no grandstanding, or lobbying but a hard nosed concentration on improving the performance of the institution.
The culture of challenge in a Board goes in two directions: there needs to be an openness between members — so debate is rigorous but at the same time anyone can ask the stupid question without embarrassment. And it goes towards the Executive. There is a social element to both. You need to know each other to work well together. You need to come to value each other’s differences. And the Chair, in order to leverage that diversity of thought, approach and perspective, needs to be able to allow it to flower and then manage it to a viable conclusion. So we reorganised the shape of the meetings to take a strategic day twice a year and spent time in the evenings eating with each other.
The formal process of challenge was hampered by the committees, which had grown over the governance like barnacles. A sub-group, chaired by my deputy, took a scythe to them and produced a streamlined three committee structure: Finance & Investments, Performance and Audit (plus the few statutory ones we are required to have like Honorary Degrees, Remuneration and Nominations). Our biggest innovation was to introduce one-off Oversight Groups on particular projects, like the re-organisation of our loan book, the commissioning and building of new residences and, most recently, the process of working with external partners to deliver catering and total facilities management.
This process is difficult for management. It can feel like we are second-guessing them, that we don’t trust their expertise. We do. We just want to add to it by providing the crucial external perspective through interrogation of the process and assumptions used to reach conclusions. There is general agreement, on the last of those projects particularly, that, although initially resisted to some degree, it has added very considerably to the capacity of the University to get a very complicated contractual process right in order to deliver the very best quality and value to students and staff.
What has been crucial in underpinning all this has been a transparent process of recruitment (only of the independents of course as the others are elected) and an agreement that we would institute a formal system of appraisal. I have explicitly lead recruitment designed to vary the age, gender and range of skills on the Council. We have developed a formal skills matrix. For a voluntary Board appraisal can seem too much. We are all volunteers, after all. But we are still responsible for a £200m, highly complex organisation. Appraisal is part of judging both the effectiveness of the Council as a whole and of individual members.
Working together in this way with management we have rediscovered Sussex’s mojo. Income has increased by 66%, student numbers by 25%, research income by 38%, academic and technical staff numbers by 12%, our league table position has gone from the low 20s to an average of 15 in 2011-12. Our surplus in 2006-07 was £2.9m (2.2%) in 2011-12 it was £13.7 (7.5%) and rising.
There are a series of, very well, written codes now on governance from Cadbury, to Higgs to the UK Corporate Governance Code. But, while rules can guide, and you need the right structures for the formal process of challenge, in the end only the culture of the Board can make the difference between the nightmares and success. My experience at Sussex has lead me to develop, in my professional consultants life, a form of Board self-assessment, detached from tick box questionnaires which concentrates on the self-conscious capacity of a board to examine how it behaves, measure its effectiveness and then work together on enhancing its effectiveness. No external reports, just my colleagues and I working to enable change.
The ability to leverage difference of approach, provenance, style and perspective in this way is what develops challenge in Boards. As Henry Ford said “If there is any one secret of success, it lies in the ability to get the other person’s point of view and see things from that person’s angle as well as from your own”.
And that comes by developing the right culture not ticking the boxes of compliance.