Why Board Skills Matrix Depends on the Type of Business

In the process of globalization and increasing competition in the global market, much attention is paid to effective corporate governance. Here is more about the role of the board skills matrix.

The concept of skills matrix

A board skills matrix is a document created primarily for internal purposes to empower the board to form a view as to the productivity of the board and to inform board renewal and succession planning.

The implementation of the strategy of capacity development of the enterprise management system involves different roles of boards and their unequal contribution to achieving the result, as some types of management work are more important in the context of achieving strategic goals of capacity development than others. Under such conditions, the level of competencies of the board of directors staff becomes very important, as well as a clear differentiation of requirements for these competencies. Thus, a modern board of directors has a comprehensive responsibility to oversee the organization and its role in corporate governance, and the process of renewing its composition requires reflection and analysis.

What is the purpose of the skills matrix in board skills assessment?

Performance management systems, which include setting targets and evaluating executives, are widely used to measure the performance of executive management and others. They are an effective way to ensure quality throughout the organization and make key decisions about its workforce. When creating a scheme for renewing the composition of the board, it is useful to extend the same concept to the board itself.

Of course, the practice of board skills assessment is not new, but, unfortunately, too often directors’ appraisals are insufficiently comprehensive or objective. Conducting evaluations in the context of performance management helps to address these challenges. However, it should be understood that the assessment of individual directors should be carried out with great attention to both personal and legal factors.

A critical first element of any performance management system is the regular review of the skills required by the organization. At the board level, this means developing a matrix to assess the skills, experience, and qualifications needed by the board to exercise its mandate and contribute to the organization’s long-term success. Key skills should include experience in a CEO or senior management position, audit/finance experience, or relevant background knowledge.

Skills such as risk management, IT, and social media experience are also being added to these matrices. Skill matrices help identify gaps and achieve a diversity of skills, experience, and qualifications on board.

According to the skills matrix, the correct composition, and competence of the board of directors:

  • An in-depth understanding of the industry in which the company is involved, for a better assessment of risks and their consequences.
  • Diversified experience of directors to better understand the various risks that can affect the company. The directors may change as the company’s strategy evolves.
  • A director with competence in managing a specific risk and versed in the company’s processes and results.

Once the board has a clear understanding of the skills, experience, qualifications, and behaviors it needs to create long-term value, the next step is to assess the strengths and weaknesses of the current board based on an assessment of the board’s overall performance, individual directors, or combinations of both. This allows the board to determine how the current directors’ skills match the required mix.