The debate about term limits for housing association board members rumbles on. Meanwhile, the world is changing rapidly around us and the need for excellence in governance has never been greater. Tamsin Stirling reflects
October 2014
Community Housing Cymru’s consultation on a Code of Governance (1), in line with codes in place for housing associations in all other parts of the UK, includes suggested maximum terms for board members. This has generated significant debate in parts of the sector.
Many associations already have term limits for board members and, while they may amend the detail from time to time, see term limits very much as part of how they operate. Others do not have term limits and some see them as unnecessary and overly prescriptive. However, if greater diversity (of experience, thought, perspective, knowledge, competencies etc) is to be achieved around board tables to support the highest quality of debate and decision making, some turnover will be needed to enable change. Term limits can also help with recruitment, putting some parameters around the commitment expected from new board members.
An interesting analysis from the business world of 1,500 firms (2) identified nine years as the optimal length of tenure in terms of quality of decision making and monitoring and also found that the optimal length of tenure will vary between sectors. The authors’ overall conclusion is that there is a time-varying trade-off between knowledge (positive) and entrenchment (negative) for board effectiveness, which should be taken into account when designing board structure.
Term limits (along with age limits) are acknowledged by some commentators as being proxies for really effective and robust board evaluation used, not only as a means of improving board performance, but also as a tool for board renewal. For example, in a paper, Aiello and Hanson (3) note:
‘In an ideal world, rigorous director evaluation or some similar process would regularly and reliably enable board refreshment — and with more surgical precision than the blunt instruments of age and term limits.
But also:
‘Until that ideal world arrives, term limits appear to be a potentially effective means of satisfying the need for board refreshment, director independence, technology-sawy younger directors, and diversity of all kinds.’
Governance expert Richard LeBlanc (@DrRLeblanc) expresses things somewhat more bluntly, noting that term limits are being imposed on companies in many countries because boards have not moved to take action themselves.
November 2014
A survey of over 200 board members by Harvey Nash (4) focused on how boards are changing. One of the key findings was that there is a mismatch between the skills on boards and the challenges faced by the organisations. Areas which were considered by respondents to have increased in importance as skills required to be a good non-executive director over the past three to five years included:
– understanding of risk and governance
– strategic thinking
– the ability to challenge positively
– financial literacy
– understanding new technology/digitalisation, and
– being influential rather than directive
In respect of skills, the report concludes:
‘Organisations need to think more clearly about what they need, rather than appointing more of the same. They should start by assessing the current capability on the board, then be clear about their strategic direction, and only at that point, devise briefs designed to bridge any capability gap. This opens the field to non-executive candidates from different backgrounds.’
It is interesting to note that the list above includes behavioural competencies as well as technical skills. Boards also need a variety of experience and perspective. As we have seen in the financial sector, some highly technically competent boards made some very poor decisions which clearly demonstrated groupthink at work.
In parts of the housing world, there is a move to smaller, more ‘professional’ (perhaps paid) boards which often don’t include tenants. For me, the contribution of tenants to the governance of housing organisations is a vital part of having diversity of world view around the board table. This is absolutely crucial to avoiding groupthink.
December 2014
As the end of 2014 approaches, it’s an opportunity to reflect on how productive, effective and enjoyable board meetings have been this year.
In his article ‘Is Your Board Dysfunctional?’ which I mentioned in my board diary in the last issue of WHQ, David Doughty sets out what boards can do to tackle areas of dysfunction (5). I was particularly taken with a point he made that board meetings should always be interesting and frequently fun. How might agendas and the way that meetings operate change if we all took this as our starting point for planning and contributing to board meetings?
I am sure that there are different, imaginative and engaging ways of debating issues and coming to decisions that really make the most of what will be increasingly diverse expertise, perspectives and experience around our board tables. I would be interested in hearing your thoughts and ideas – do get in touch.
Tamsin Stirling can be contacted at tamsin.stirling@dial.pipex.com and is on Twitter @TamsinStirling1
(1) chcymru.org.uk/uploads/general/Code_of_Governance.pdf
(2) papers.ssrn.com/sol3/papers.cfm?abstract_id=2302917
(3) www.heidrick.com/Knowledge-Center/Publication/Times-up-Director-tenure-moves-to-the-front-burner
(4) www.harveynash.com/group/mediacentre/HN Board Report 2014.pdf
(5) david-doughty.com/2014/08/22/is-your-board-dysfunctional-2/