Essential Skills of Directors in the Boardroom

What are the most essential ‘general’ skills of directors?

The board of directors plays a pivotal role in guiding the direction of an organisation. Without the right skills of directors on the board, this can prove challenging. That’s why it’s critical that each board member’s skills are assessed to determine if they’re the right fit for the board and the organisation.

Some of the more general skills that are important to consider for any board are listed below.

General director skills

• Leadership: A cornerstone skill, leadership empowers directors to guide, inspire and be decisive.
• Accounting and finance: Financial literacy is essential for effective oversight of fiscal health and strategic financial planning.
• Legal, regulatory and governance: Directors must be well-versed in legal and regulatory frameworks to ensure compliance and ethical conduct.
• Risk management: The ability to assess and manage risks is indispensable for navigating uncertainties and making informed decisions.
• Negotiation: Negotiation skills are valuable for resolving conflicts and achieving favourable outcomes in various boardroom scenarios.
• Strategy: Directors significantly contribute to formulating and executing the company’s strategy, requiring strategic thinking for long-term success.
• People management: Effective directors manage relationships within the board and with stakeholders, fostering a collaborative and productive board environment.
• Industry knowledge: A deep understanding of the industry is vital for anticipating trends and making informed decisions.

Personal attributes

• Good judgement: Sound judgement enhances decision-making, contributing to overall board effectiveness.
• Communication skills: Clear and concise communication fosters transparency and open dialogue within the board and with external stakeholders.
• Active contribution: Active participation is key, bringing diverse perspectives to discussions.
• Confidence: Confidence inspires trust and credibility, enabling effective decision-making and communication.
• Honesty and integrity: Fundamental for maintaining trust and ensuring ethical business practices.
• Intellectual curiosity: A thirst for knowledge contributes to informed decision-making.
• Discipline: Adherence to ethical standards and fulfilling responsibilities diligently.
• Genuine interest: A genuine interest in the company’s well-being demonstrates a passion for its success.

General vs specialist skills of directors for organisations

While general skills are valuable for boards, there are a number of more specific skills that a board may require depending on the current needs of an organisation. At BoardOutlook, we identify these specialist skills through the use of a diagnostic assessment, as part of our skills matrix process. This assessment allows all board members to have a say on what skills are most highly prized for the organisation given strategy, risks and opportunities facing the organisation over the coming 3 - 5 years. Some of the common ones we see included across listed entities include:

• Risk management oversight
• Safety
• Innovation and disruption oversight
• Major change and transformation oversight
• Communications and corporate affairs oversight
• Marketing and brand oversight
• Accounting and financial reporting oversight
• Corporate governance experience
• Technology and data oversight
• Talent, culture and diversity oversight
• Sustainability
• Strategy oversight

Factors to consider when assessing the skills of directors

Another thing to consider is not simply the skill itself, but how the expertise is defined relative to the organisation – and how that is balanced with other key factors, such as personality attributes and diversity.

Understanding criticality of skills

The skills framework at BoardOutlook is broken down into critical skills and general skills. Critical skills are those not easily delegated to management and are imperative to an organisation’s strategy and key risks. General skills are important, but are less unique to the organisation. By breaking up skills of directors into critical versus general, the process of assessing skills gaps becomes significantly easier. It helps the board to prioritise which areas to focus on for board succession planning, and gain alignment on any trade-offs required for future candidates.

Balancing skills with diversity

While having the right skills are important, it’s also becoming increasingly important to recruit directors from a variety of backgrounds, with a range of expertise and experience. This helps to prevent groupthink and ensure that the board is performing effectively.

A culture of board refreshment

Boardroom turnover remains consistently low across the globe. In 2023, it was reported by Spencer Stuart that only 53% of S&P 500 boards added at least one new director. If a board hasn’t seen any turnover recently, it’s important to ask the following questions:

• Is this a high-performing group?
• Does the current mix of skills align with the company’s strategic plan?
• Are we regularly using tools such as meaningful skills matrices and evaluations to ensure we have the optimum board composition, given the company’s emerging issues and strategic direction?
• What skill sets do we need to strengthen?
• What are the new or emerging issues of significance to the company, and should we add experts to the board or seek outside expertise on these issues?
• What are the costs of maintaining the status quo?

Developing highly skilled boards

In today’s dynamic business environment, boards must ensure their directors have the right skills to be effective. By utilising a skills matrix, boards are able to assess the skills of directors, as well as the criticality of those skills. They can also identify any trade-offs, such as personal attributes or diverse backgrounds to determine if they’ll be a good fit for the board and for the organisation. Making use of skills matrices and fostering a culture of board refreshment ensures adaptability and long-term effectiveness for the organisations the boards work with.