The art of transitioning to a board

THE introduction of a nine-year limit on the independence of directors of listed companies, coupled with specific disclosure requirements around board diversity, should spur greater board renewal. With 20.9 per cent of independent directors having served on the boards of Singapore-listed companies for more than nine years (Singapore Directorship Report 2023), many companies will be looking to refresh their boards in this year’s upcoming annual general meetings.

Progressive boards and nominating committees recognise that cohesive boards with the right mix of competencies, skills and perspectives can be a strategic asset. When recruiting new board members, they will look for candidates with skillsets and experiences to complement the existing board, in alignment with the company’s long-term strategy.

Taking the first step

With more boards looking to replace existing long-tenured independent directors, this is a great opportunity for board aspirants. However, before embarking on a directorship journey, candidates would do well to consider why they want to be on a board. Some useful questions are: What do you want to achieve? What kind of board would you like to serve on? And how best can you contribute?

It is no secret that most board placements are still made within an established network of contacts. Consequently, networking is crucial. Building up boardroom capital requires strategic positioning, branding and visibility. It helps to be prepared and do your research.

Capabilities required of a director

The key difference between the role of an executive and a board member is that the board operates at the strategic level – defining the “what” needs to be done – and leaving the “how” to the management. Hence, the capabilities needed as a board member are not the same as that of the executive team. Some of the capabilities required at the board level include:

1. Strategic thinking.

The ability to understand emerging trends is highly valued. Familiarity with evolving business models, industry-specific regulatory issues, emerging digital technologies and sustainability reporting requirements would be an advantage, if some of these skills are lacking in the existing board.. Beyond managing downside risks, the knack for recognising disruptive challenges as potential long-term value-creation opportunities is an advantage.

2. Financial knowledge.

The ability to interpret financial reports and understand the capital structures of companies is fundamental in fulfilling the fiduciary duty of boards. Moreover, being able to connect projected financials to key trends and external realities is useful.

3. Intellectual rigour.

Today’s boards must be able to proactively capitalise on the forces of transformation and innovation shaping our future. Agility in learning and openness to relearning and adapting to more complex and disruptive realities are key. This enables the board to keep tabs on tomorrow’s upside opportunities.

4. Emotional quotient.

Stepping up to build a successful, trusting and healthy board culture requires directors to be empathetic without compromising vigilance. The art of asking the right questions without pre-judging helps promote open communication and transparency. It is important to create a psychologically safe environment where executives can be forthcoming to share good news and seek advice when things are not going well.

5. Unique proposition.

Be clear about what role you want to play on a board and where you can add the most value. Aspiring directors should invest time to build up their unique personal brand, knowledge and qualities, which can validate their board- relevant experience and boardroom capital.

Navigating boardroom dynamics

Boards that perform are unlikely to be nice all the time. Independent directors are expected to express independent views and nudge the board to consider broader alternatives to make better collective decisions. To be effective, diplomacy, tact and emotional courage are needed, especially when bringing up contrarian views.

What are some common pitfalls to watch out for when serving on a board?

When navigating boardroom dynamics, directors should learn to listen and understand. By keeping an open and curious mind, board members can find ways to establish common ground and build trust. This is an important first step before putting forward your point of view.

Next, when engaging in constructive conflict, it is worth noting that most people are not against changing their minds – although they might object to having their minds changed for them. Thus, it is always easier for someone to change their minds if presented with new realities or insights. Putting forward a rational argument gives them a reason to justify the need to rethink their earlier decisions and come around to your point of view.

Finally, directors must appreciate the joy of being proven wrong. When we share our views, we must also be prepared to debate and be proven wrong. In fact, when we are proven wrong, especially after a robust and fact-based debate, we learn something new and will be less wrong in the future. Overall, healthy debate is a good thing for the board and results in better decision-making.

Aspiring directors need to understand the heavy responsibilities of being an independent director before they embark on their journey to boards. Exercising due diligence and being mindful of how they can contribute to different boards is a start.

The writer is a member of the SID Governing Council.