02/07/2014 - 05:17

‘Inside’ appointments stifle boards

02/07/2014 - 05:17

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Mistaking experience for ability is common among board appointments, highlighting a strategic weakness in the way business decisions are made.

‘Inside’ appointments stifle boards
TOP TIER: Australia lags other developed countries when it comes to female representation on company boards.

The shortage of women and those skilled in ICT remains a weakness in Australian boards; and it seems that a limited perception of required skills, as well as limited access to board-matching services, is at fault.Recent research of Australian boards undertaken by our company indicates that just 5 per cent of board roles are advertised, while 39 per cent of board roles are an 'inside job'.

This who-you-know approach to board appointments is hardly strategic – diversity of board composition will be more effective in aligning planning to company objectives than any network of mates.

Global research on board composition has clearly identified the value of women on boards. Boards with more women have been demonstrated to attract a significantly higher return on equity, invested capital and sales. Further, women are seen as a moderating influence on empire-building CEOs, while also reducing the price of any acquisitions.

In spite of the demonstrable advantages of appointing women board members, however, women are still massively underrepresented on Australian boards. Just more than 18 per cent of ASX 200-listed companies have female board members, which compares unfavourably with the UK at 21 per cent and Norway 41 per cent.

The CEO of industry association Consult Australia, Megan Motto, says businesses often prioritise proven acumen and/or professional services backgrounds when making board appointments.

While many women have strong technical skills in these areas, they often don't have the exposure at the top levels. This is reflected in the research, which identified the dominant qualities sought in new board members as: experience and authority (21 per cent); mentoring, coaching and support (19 per cent) and business growth expertise (18 per cent). The emphasis on experience, rather than how the board could change companies for the better, is creating its own risk paradox – companies are reducing their potential for profitability by limiting their perceptions of board qualification.

IT failures

There's no doubt the continued growth of business is dependent on embracing emergent technologies; however a lack of skill and understanding about ICTs on boards means that technology investments and opportunities are often sidelined in strategic development, or considered a bolt-on to existing commercial operations.

It's difficult to determine why organisations would risk their competitive positioning by failing to appoint board members with adequate IT skills.

Given Australia's appetite for technology use, and the growth of online audiences on our doorstep in the Asia Pacific region, it would seem to be risky for firms to be operating blind to the profound changes in consumer behaviour, data-oriented business intelligence and operations software and data storage.

Queensland researchers have found that, while the majority of senior executives do acknowledge the need for ICT skills, there seems to be little evidence of change in board composition to address the weakness.

ICT analyst Paul Budde said the lack of strategic implementation of ICTs was hampering a more coordinated approach across mid-size organisations.

"As there is hardly any board representation from within the ICT sector, companies end up with an inability to drive an effective implementation that underpins the overall company strategy," he said.

Future opportunities

Not all the outcomes of the Business Connector research were cause for concern, however, with a significant majority of senior executive respondents not currently serving on boards currently seeking appointments.

While only 4 per cent of all executives looking for board appointments have completed courses in board management, 77 per cent of those surveyed are looking for opportunities to access boards through business-matching programs, courses and networking.

Further, the 70 per cent of executives seeking board appointments are doing so because they want to help a business, in terms of overall business growth, and improving benefits for employees, investors and the community.

The question that remains is whether Australian business is prepared to take advantage of a strategically composed board to help their business growth.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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