By Claire West

The recovery of the UK economy into sustained growth will be driven by the fitness of company boards, and their ability to provide clear direction for the enterprising talent within the commercial sector, says the Chairman of the Institute of Directors (IoD), Dr Neville Bain.

Bain’s statement, which follows recent concerns from the Bank of England about a possible slowdown in the speed of recovery, is a timely reflection on the need for strong leadership at the helm of British businesses.

It is a theme which permeates new guidance from the IoD, published in The Effective Board, which has been co-authored by Bain and the IoD’s Head of Corporate Governance, Dr Roger Barker. The Effective Board reflects on the lessons learned during the tumultuous time of the credit crunch, drawing the focus away from regulation and legislation (of which there has been much of late). Instead, it explores the characteristics and make up of successful boards which are well placed to support the economic recovery.

“Many of the official responses to the financial crisis, such as the Walker Report and the latest edition of the UK Corporate Governance Code, have recognised that legislation, regulation and codes of best practice can
only go so far in shaping behaviour inside the boardroom. They become nothing more than a quality control check,” says Bain.

“Of greater importance is the presence on boards of able and motivated directors with a detailed understanding of their distinctive role. No matter how well a board is performing currently it can, and really must, do
better.”

Dr Bain highlights effectiveness and risk management as two key areas where boards have been “challenged to up their game” in recent years.

“Risk management should not be an annual and financial exercise: it needs to be integral to operational life. Effective boards are not constitutionally risk-averse, but they’re not reckless either.”

The Effective Board highlights the defining characteristics of successful boards as those with the right strategy, the right people with the right skills and motivation. They have clear values well communicated and practised throughout. Leadership of the organisation comes from the board or equivalent body and it is the board that sets the organisation’s vision, purpose and values.

The book provides a ‘tool-kit’ for directors who want to address areas of underperformance, with a focus on practical examples of areas where boards can improve their own performance. The philosophy it espouses is one
of good governance, which Dr Barker, the book’s co-author, is keen to emphasize.

“Good governance is a key source of added value and competitiveadvantage,” he says.

Barker continues: “The challenge for the board is to supply a governance framework that will deliver long-term success for the organisation in terms of its specific mission and objectives. Governance should never be regarded
as a mere compliance activity.”

And as to the guiding principles for a successful board, Bain articulates it thus: “The key components for a successful board are: balance to ensure that there will be excellent challenge and debate with better decision-making as a result; annual meetings between the Chairman and their
non-executive directors along with annual board appraisals; and a sound system of risk management and internal control to safeguard shareholders’ interests and the company’s assets.”