Non-executive directors who are aware of their company's risk exposure and who receive timely, relevant information about the business are in a good position to ask the right questions. But knowledge, along with the protocols and procedures that form the basis of corporate governance, can only go so far. Often, it is boardroom dynamics that constitute the biggest barrier to effective risk oversight.
"The corporate governance protocol is simply that – a protocol," says Professor Kakabadse, who has amassed a database on boards that covers 10 nations and many thousands of private and public sector organisations. "It allows boards to demonstrate that they have gone through the motions, but it doesn't get to the underlying problem. What we have found is that even when non-executives know there is a major concern, the boardroom dynamics are not conducive to conversation. There are high levels of inhibition."
Tensions between executive management and non-executives can exacerbate this situation. In our survey, board-level executives express limited confidence in their non-executives, with just 37% agreeing that they possess a good technical understanding of risk issues.
Professor Kakabadse says that his database reveals similar findings. "Executive managers who sit on boards down-rate their non-executive colleagues on every measurable performance," he says. "Managers often think that the chairman doesn't know the company very well and hence doesn't know the reality of what's happening."
The part-time nature of the role is undoubtedly a factor is this assessment. To remedy this situation, Professor Kakabadse suggests that business needs to re-think carefully the scope and responsibilities of the non-executive role. "We have not thought creatively enough about what it means to be a board director and who should be coming into the pool of talent," he says. "It is a specialised role now and you need specialised skills."
A move away from the "cosiness" of boardroom relationships would help, as would a limit on the number of directorships an individual non-executive should hold. Specialised training, perhaps through a non-executive trade association, would also help to formalise the role, believes Professor Kakabadse. But ultimately, the problem will always come back to the dynamics of the boardroom.
"Specialist skills and understanding risk help, but it's the ability to be able to speak up that really makes the difference," says Professor Kakabadse. "Board directors simply find it very difficult to speak out, particularly in companies where there is a combined CEO and chairman role."
