Board Skills Matrix: An Essential Tool for Board Performance

What does a board skills matrix look like?

A board skills matrix is a visual framework used to evaluate and map the skills and key attributes of directors. When built with rigour it provides a comprehensive view of the relevant skills required for the board to oversee the organisation. There are a number ofboard skills matrix examples, however the key to building a robust skills matrix for board members lies in the following steps:

• How you identify what skills you want to see on the board prior to the development of the matrix
• How you ensure the accuracy of the skills assessments that inform your matrix

If this data is captured successfully, the end result is an essential tool that enables better decision-making and resource allocation. It provides the board with a deeper understanding of the expertise highly regarded for the business, and of any gaps that may exist within the current board composition.

A skills matrix should identify:

• Which skills are critical given the challenges and opportunities facing the organisation
• The current skills, knowledge, experience and capabilities of board members
• Any gaps in skills or competencies that can be addressed in future director appointments or by leveraging external support

What types of entities benefit from a skills matrix for their board of directors?

Every board benefits from a skills matrix. The key is to review existing skills and to map these against required skills now and into the future.

There is a science to building a high-performing board of directors. Whilst time and effort are regularly spent selecting the right mix of skills for employee teams – even sporting teams – some boards are assembled without appropriate consideration to skills. Instead, the focus may be on business connections, tenure or gravitas. This can manifest in poor oversight, decision-making or risk to the organisation.

One cautionary tale from the US is of an insurance company that had to cover more than $100 billion in damages caused by climate change. As there were no board members with expertise in ESG with an understanding of this critical risk, this led to concerns from shareholders regarding the effectiveness of the board.1

Global perspectives on skills matrix implementation

Reporting requirements surrounding board composition are changing around the world. In many countries, there are regulatory requirements for boards to complete and disclose a skills matrix for their board of directors. There are also an increasing number of diversity requirements that must be met and reported on in annual reports, governance statements and regulatory disclosures.

As for the requirements relating to skills, it’s important for companies to be proactive to meet growing expectations from investors, proxy advisors and broader stakeholders. Even if there are no legal requirements for the board of directors to disclose a skills matrix, it’s good governance to complete one and various forms of discussion and disclosure may take place over the course of normal stakeholder engagement.

Disclosing a board skills matrix provides insight to stakeholders as to the depth of the board’s thinking regarding the skills needed to oversee the business. This builds clarity about whether the board is fit for purpose and can provide confidence to investors, employees and regulatory bodies as to the governance of the organisation.

Typically companies disclose their skills matrix with directors unidentified, but there is growing interest from a range of stakeholders to disclose a full skills matrix with directors identified.

Benefits of a skills matrix for board performance

A board skills matrix helps:

• Increase transparency to shareholders about the board’s capabilities
• Identify skills gaps and facilitates board diversity
• Highlights opportunities for director development and education
• Drive succession planning to enhance overall board performance

A board skills matrix provides an understanding of the expertise and experience required to steer the organisation, as well as a real-time view of where the board sits today. This transparency helps shareholders to feel confident in the board’s capabilities and by extension the future investment potential of the organisation.

Promoting board diversity

A diverse board provides a variety of perspectives, encouraging innovative thinking and robust discussions. In order to achieve a diverse board that reduces the risk of groupthink, it’s worth reporting on your board members attributes within your skills matrix. This may include gender, ethnicity, geographic experience and average tenure, all with the view of ensuring that a balanced mix of attributes are considered as part of your board composition discussions.

Director education

Once gaps in director skills and expertise become identified in the skills matrix, board members have visibility on their own areas of opportunity. This lends itself  to discussions relating to director education, both internally and externally. Not every skills gap needs to be filled by a new director, there is an opportunity to develop the existing directors using director education programs to build a culture of continuous learning and development.

Succession planning

A skills matrix can identify gaps in the current board, helping to guide recruitment efforts when filling positions for new board members. It also helps to identify future leaders, such as committee members and chairs. By creating a board skills matrix and maintaining it regularly, a board is able to plan for smooth transitions and continuity within the board.

Best practice for building a robust skills matrix

Leading chairs, directors and company secretaries understand the importance of a skills matrix for board members, however there has historically been uncertainty in selecting and assessing skills in a self-assessment environment.

Determining which skills are most critical for your board

There are a number of possible approaches a board can take to identify which skills, competencies and diversity requirements are important for its board. At BoardOutlook, best practice for this is a diagnostic approach that allows board members to have their say on what is most important by asking all participants to identify and then rate the criticality of each skill.

We also seek to provide more nuance and context around expertise, with an understanding of the specific practical experience and/or senior oversight required to oversee the organisation. Where is deep experience specifically required? Where might general understanding be enough, in combination with external expertise? These are the questions that need consideration given strategy, risks, opportunities and stakeholders.

Common challenges in accurately assessing skills

One of the key challenges that arise from a skills matrix is the inherent biases individuals may possess. It’s common to see some directors either under or overrate their skills, which can pose a problem in developing an accurate representation of the skills of the board.

There are several ways to potentially address this, such as interviewing individuals post-survey to better understand their self-assessments, but this can prove a time consuming exercise. At BoardOutlook, we found the best solution was to build our skills matrix software in a scientific way. Our self-assessment gives directors pause and encourages them to think deeply about their expertise and growth areas.

“By ranking skills from strongest to weakest, it forced our directors to recognise that one cannot be an expert in everything. Equally important for those directors prone to under-rating their skills, it forced recognition of strengths.” – Chair, ASX100

In light of self assessment challenges, completing a peer review of skills is fast becoming the market standard. It’s been shown to increase consistency of results by providing additional data for calibration.

Peer assessment asks directors to assess both their skills and those of the other directors on the board. It is a feature highly sought after by chairs and directors, keen to understand where the board believes a directors experience can be leveraged.

Enhancing board performance

Ultimately, a well-crafted board skills matrix is crucial for discussions and decisions regarding board composition. It not only provides a comprehensive view of the current skills within a board, but also helps identify any gaps that need to be filled.

By promoting diversity and increasing transparency, a board skills matrix significantly enhances performance and decision-making. When done purposefully and rigorously, creating a skills matrix can be so much more than a box-ticking exercise, driving important succession planning and development discussions, and producing meaningful outcomes for the benefit of the organisation, employees, investors and society.

Sources

1. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3758584