New duties make the classroom a better place to learn than the boardroom
Hannah Prevett Sunday Times Published: 12 May 2013
Chartered Director Nick Baldwin: ‘You’re responsible individually as a director’
The received wisdom is that new directors learn on the job. If they are not equipped with the necessary skills when they accept their first board appointment, they will need to be quick on the uptake.
Not any more: the tidal wave of new governance requirements means it is not good enough to acquire expertise over time. And, as a result, many prospective boardroom stars are seeking training to help them do the job they’re paid to do from day one.
When Alan Kay learnt he was to join the executive board of Costain in 2003, he immediately began considering how to prepare for his new role at the engineering and construction group.
“A lot of people haven’t really thought about how to prepare for a board role. [They think] it’s something that happens naturally: you get on the board and then you think, I’m going to learn on the job,” said Kay, who is Costain’s technical and operations director. “But once you’re appointed, becoming competent and learning as you go takes several months, which is not ideal.”
He researched training options for new board members and came across the Institute of Directors’ accredited programmes, including the certificate and diploma in company direction.
The IoD fills 6,000 places on such courses annually with representatives of both large and small organisations — not all of them young guns, as Roger Barker, head of corporate governance at the IoD, explained.
“The directors of large organisations were reluctant to undertake any form of formalised director training. These were typically seasoned former executives, with extensive experience of serving on boards as chief executives or chief financial officers. It has been difficult to persuade such individuals that director training is relevant to them,” said Barker.
“However, the purpose of director training is not to duplicate the operational knowledge and experience of this type of board member. Rather, it is to give directors a distinctive governance perspective on their boardroom role, which emphasises their unique responsibilities and accountability to shareholders and other relevant stakeholders.”
The importance of understanding legal duties cannot be overestimated — for directors of businesses of all sizes, said Peter Holmes, managing director of Anchor Magnets, a Sheffield manufacturer.
“You can see the people on a course who don’t understand their responsibilities,” said Holmes, who has completed the certificate, diploma and chartered director stages of the IoD training.
“When you do the director and the law module, their faces just drop because they didn’t actually realise their fiduciary duties towards the long-term wellbeing of the organisation.”
Barker’s point about training helping veteran members of staff to distinguish between their executive and non-executive responsibilities is an important one, said Kay. “One of the first things you appreciate when you go through board training is that as a director you have basically got two hats: in the main, you have an executive role and you have also got your role as a director of the business.
“Sometimes you’ve got to take off your executive hat and act as a director in the best interests of the company, as opposed to batting for your own score.”
Kay admitted that this transition from being a manager to having a dual role is the most difficult adjustment to make. “You are no longer responsible for just part of the business — you also have an overarching responsibility as a director of the business. Most people, unless they have been through the kind of training offered by the IoD, do not understand that.”
Nick Beech, head of the Centre for Director Education at Leeds Metropolitan University, said training helps directors to handle the often tricky dynamics of the boardroom.
“You’ve got people who are effectively god-like figures within the organisation and if nobody’s checking them, or if other board members don’t know what the procedures or protocols are supposed to be, it’s quite easy to undermine the board. And if you undermine the board, you undermine the company,” he said.
Training also presents opportunities for entrepreneurs whose businesses are struggling to grow beyond a certain point, said Beech. “We find that a lot of people who’ve started a business may find that their organisation has run beyond them.
“You’re doing £6m a year and you don’t know how to move it to £10m because you’re still a manager and haven’t made that mental change to understanding what a director should be doing.”
For larger organisations, the greatest value of boardroom education may come from training up those who have not yet reached director level, said Kay.
“My company is starting to focus on the next layer down. We have had a number of people go through this process now and we have got more in progress. It’s tomorrow’s board,” he said.
“You have to do the chartered director qualification once you’re on the board and you’ve got some experience, but the certificate and the diploma should be done beforehand. That is the right timing.”
Flying high without a corporate safety net
Nick Baldwin had a wealth of board experience when he embarked on a portfolio non-exec career, having been chief executive of the FTSE 100 company Powergen when it was sold to Eon.
Yet there was still a big adjustment to make when he realised he no longer had the safety net of working for a large organisation.
“Being on the board of a FTSE company, you’ve got a company secretary, you’ve got lawyers, you’ve got finance directors — all of whom keep you decent, legal and honest, so you don’t tend to worry too much because someone’s going to tell you what to do,” said Baldwin, now chairman of the Office for Nuclear Regulation.
“What you find when you’re not surrounded by the corporate machine is you don’t know what you’re meant to do very well. You’re responsible individually as a director and you need to have a good understanding of what your role and legal responsibilities are.”
Baldwin said receiving advice on winding down a company had proved invaluable as he was on the board of the Forensic Science Service when it was closed after running up big losses. “It stood me in good stead when the advisers came in. Instead of them telling me everything that was going to happen, I knew just how to interrogate them,” he said.