How do you embed and enhance director and board development?

Loretto Leavy and Ruth Sealy from the University of Exeter Business School have been conducting research to better understand behavioural dynamics of boards and how behavioural dynamics can drive positive change. In the first phase of their research, they analysed practice by looking at detailed reporting of FTSE 350 companies to develop guidance. The next phase will involve facilitated consultations on behavioural dynamics using their draft guidance. In this blog, the second in a series of six, Loretto and Ruth outline their findings in relation to  board member induction, training and development.

Although there is clarity on the importance of appointments in achieving effective boards, the supporting people processes which follow appointment are less clear. In this blog, we focus on actions taken for directors once appointed and throughout their terms to increase their board-specific knowledge. We explain why we see induction and training and development as one board process, and we highlight three levels of maturity in procedures, contextual pressures and outcomes. We reiterate that board inducting, training, and developing continue to be the responsibility of the chair with support from the company secretary or governance professional. However, we recommend the nomination committee oversees the adequacy of the overall board inducting, training, and developing approach.

Understanding board inducting, training and developing

Induction aims to build a new board member’s knowledge of the business so that they can be effective as soon as possible. Training and development have a similar aim of continuing to build directors’ insights and awareness of the board, the organisation and its working environment. There is much variation in the reporting of the 50 FTSE boards we reviewed when it comes to these processes.

In our research sample, all boards reported delivering an induction programme for new appointees. Training and development were regularly coupled with induction programmes with the aim of continuing to build directors’ knowledge.  We found that the maturity patterns which emerged for inducting mirrored those of training and developing which is why we have categorised inducting, training and developing as one process. These maturity patterns relate, at the basic level, to a sole focus on legal, regulatory and governance requirements; then adding a structured programme; and finally, at the most mature level, focusing on engaging with the business.

At the first level of maturity, induction, training and development actions will focus on regulatory, governance and legal requirements. Although this includes the grounding for board duties, we see potential issues with this approach as it limits the view of the wider contextual pressures as well as limiting interaction with fellow board members and the wider business. Therefore, this approach has the potential to provide insufficient board orientation for induction and ongoing development, particularly where there is a gap in business-specific knowledge between executive and non-executive directors.  

The mid-level maturity approach is a structured training programme for the board which delivers knowledge and insights on strategy, business operations, new challenges and risks. The programme involves building connections to the wider business, operations and advisors. The design of the programme is tailored either to the experience and knowledge of the incoming director for induction or to the current board for training and development, including addressing evaluation findings. This approach gives the board an opportunity to view wider contextual influences and challenges. For example, one company explicitly noted that for directors to challenge effectively it ‘is crucial to ensure that they remain well‑informed of changes to the business environment’. We argue that this approach more comprehensively addresses the induction and development needs of a board of a large complex company.

The final, most mature approach builds on the structured programme by engaging with the wider business. This helps to ensure continued holistic development which can lead to informal reflections on strategy, culture and decision making. In doing so, this approach creates wider engagement with the business. Tailoring continues here with curation of the programme to meet individual strengths and future strategy areas. The wider engagement was noted as facilitating board interaction with named individuals on the formal succession plan via a more structured cycle of board interaction. This was usually supplemental to the employee engagement requirements and linked to the board meeting cycle. The more advanced approaches also ensure that the programme is continually enhanced with feedback from inductees and internal and external board evaluations.

Reflections from our workshops

In the workshops we discussed how inducting, training, and developing boards is core to the chair role and supported by the company secretary, but oversight of the programme should be provided by the nomination committee as it is core to their purpose. We acknowledged it was now a market norm that a programme would be in place. We explored that the different approaches were influenced by several factors including board-specific pressures on NED time, budgets for programmes and how receptive the organisational culture is to the need for board development. We discussed the importance of a structured programme with engagement allowing for informal interactions which are critical for building relationships. We also reviewed how the programme integrates with skills reviews and evaluations. We discussed that a programme’s outcome allows directors and boards to support and challenge effectively so that they evolve as the business evolves. The workshops endorsed treating induction, training and development as a single process. The usefulness of the maturity map was supported by all participants.

Recommendation for nomination committee oversight of inducting, training and developing boards

There is clear regulation on the need for effective appointments (in the UK and US for example). However, there is less clarity about the actions required following appointments. Overall, we believe that it is suboptimal to see appointment as a standalone process which can produce an effective team. We endorse that the chair should be responsible for induction, training and developing their boards, normally with support from the company secretary.

In the UK, expectations for this process area are no longer contained in the UK Corporate Governance Code but are included in the FRC Corporate Governance Code guidance. We welcome this guidance which places induction, training and development at the heart of the nomination committee process. In some cases within our sample, the nomination committee does not have any oversight of induction or training, although we found that a small number of boards enact this oversight. Our recommendation is that inducting, training and developing boards is formally undertaken by the nomination committee as it is ineffective to de-couple induction oversight from the appointment responsibilities of the committee or training and development oversight from the re-appointment responsibilities.

Background to research programme

Induct, train and develop actions are part of a bundle of actions deployed for board behavioural dynamics. We assume that there is no gap between reporting and the actions taken by the board. However, we are validating our findings against real-life experiences. The maps will continue to be validated over the coming months before being published for formal consultation in the early new year. It is sector and jurisdiction agnostic although size is a factor with the mapping aligned to boards of large highly regulated companies and organisations. This mapping is part of our work on defining the ecosystem for board behavioural dynamics. We are also interviewing chairs, board members and senior independent directors on strategic inclusion.

Written by Loretto Leavy and Ruth Sealy from the University of Exeter Business School.

Our research is part of a board behavioural dynamics and strategic inclusion research programme.

Please register for further workshops here or to receive our programme updates.