Board Skills Matrices – Issues and Solutions

Introduction

It is accepted practice for boards to have a skills matrix. A document that maps the skills and experience of current directors to the entities strategy, risks and sector or operations. The skills matrix is used to determine director re-appointment and provide guidance to the board for future director appointments. The common process entails:

1. The board approves a skills matrix that sets out the desired skills and experience aligned to the entities strategy, risks and sector or operations.
2. Directors self-assess against the desired skills and experience.
3. Gaps, if any, are identified and used for future board appointments.

In our experience this approach is simple and often flawed. There will always be more skills required than board positions requiring trade-offs by the board who may be personally affected. Each step in the process can be influenced by human behaviours. Self-interest, subjectivity, and Board relational behaviour can lead to poor outcomes.

Board Skills and Self-interest

Directors selecting the desired skills and experience can lead to a narrow set of criteria based on their own backgrounds and the history of the entity rather than its future strategic direction. Sometimes with subtlety sometimes brazenly a director with xyz professional background or specialist skill suggests that xyz is required in the skills matrix. Boards collectively can demonstrate self-interest. For example, a board 75 – 90 year olds determining that ‘wisdom’ was an essential criterion for the skills matrix.

How to manage self-interest

The starting point of a list of skills should be put to the board independently by the Company Secretary or a person independent from the board. A framework could include the following sub-headings:

• Governance – eg strategy, risk, compliance, governance, financial
• Sector specific experience
• Operational and Organisational
• Relevant specialist experience – eg people & culture, digital
• Personal attributes (values and culture alignment)

Use of Ai

Your favourite Ai tool1 can build a list of categories and specific skills to build your skills matrix based on your strategy and key risks and scale of your entity. For example, Microsoft Copilot generated, skills for a NFP early learning provider in one area of a skills matrix:

Core Governance & Leadership Skills

Board Governance & Compliance – Understanding fiduciary duties, governance frameworks, and regulatory compliance.

Risk Management – Ability to identify, assess, and mitigate organizational risks.

Strategic Planning – Experience in setting and monitoring long-term organizational goals.

Financial Acumen – Budgeting, financial oversight, and interpreting financial statements.

Legal & Regulatory Knowledge – Familiarity with laws affecting not-for-profits and the specific sector.

Consultants

The downside of AI is that it is based on generally available content and if it is commonly used in your sector the skills matrices will look the same. Over time there won’t be sufficient differentiation to drive competitive advantage. It also enables directors to utilise the power imbalance between their position and the executive who has put forward the list of skills to push for their interests. Consultants have the advantage of being able to put forward skills and experience that are innovative and that push the board to think deeply about its future needs. Consultants can also question directors on recommendations that appear self-interested and objectively comment on the trade-offs required when there are more skills/experience than board positions.

Knowledge Assessment and Subjectivity

As outlined above the next step in the process is directors self-assessing their knowledge and skills against the list of desired skills, experiences and attributes utilising some form of rating scale eg 1 – 5 or None, Basic, Developing, Established, Expertise/Specialized.

This approach leads to a subjective self-assessment that is clearly going to have flaws. For example, it is very rare to see a director self-assessment of ‘Strategy’ or ‘Teamwork’ rated as None or Basic. However, the risk for boards lies at the other end of the rating scale of overly confident self-assessments of ‘Expertise’ that can hide gaps in the board and lead to over-reliance on unfounded strengths. Who wants to be facing a cash flow crisis or cyber-security incident to discover Billy Bloggs or Dunning-Kruger doesn’t have the expertise they claimed.

Rating scales have limited ability unless there is a clear rubric or descriptor of what each level requires and evidence to support the self-rating. For example, ‘Established’ – 10 years of experience plus relevant qualifications.

Use of Ai

Ai tools can assist with developing rating scale descriptors and examples of evidence that can guide self-assessments. For example, Copilot derived ‘Legal’ category, two descriptors for a small private company:

Note that the use of Ai tools can lead to examples or jargon based on American or other jurisdiction laws, regulations and governance frameworks or ‘hallucinations’ where examples are incorrect. Ai derived descriptors should be regarded as a starting point. Developing

descriptors that clearly differentiate between differing levels of skill/experience that assist the director to complete the skills matrix is complex.

Consultants

Assessment is a strong academic field with multiple peer reviewed journals. It is surprising that in the 400-year history of corporate boards that boards still use director self-assessment of knowledge and experience. We don’t accept doctors or nurses or students self-assessing their abilities. Who would like to have root canal surgery by a dentist who has self-assessed their skill? Governance consultants can support boards develop descriptors for the rating scales and test the evidence but the real step up in support is to utilise an appropriate assessment methodology that is independently implemented.

Examples of assessment methodologies used in other fields include:

• Registrations and licensing Boards (required for some professions)
• Qualifications
• Continuing professional development ie short courses
• Simulations, scenarios and role plays
• Mentoring
• Self-reflection tools (journals, self-evaluation forms)
• Peer assessment

Boards can utilise a range of these tools to go beyond simple self-assessments and have a higher confidence in the both the ratings in a skills matrix and the ongoing development and maintenance of director knowledge and skills. Consultants play an important role in the development of more effective assessment methodologies. For example, professional development workshops, self-reflection tools, scenarios and role plays.

Director peer assessment (~360 review) is a very effective approach for assessing common director skills that don’t have qualifications or professional registrations to support them such as strategy and risk. Director peer assessments go beyond a self-assessed ability of strategy to what knowledge, skills and contributions that are made and observed by peers in the boardroom.

Peer assessment addresses:

• Many of the weaknesses of subjective self-assessments.
• Knowledge decline and the effectiveness of professional development. It is well documented that knowledge gained from qualifications and courses declines over time.
• Assessment of positive and negative director behaviours.
• Support Chair’s guiding and mentoring directors.
• Support self-reflection and the ongoing development of directions.

Board Relational Behaviour

The longer directors sit on a board together the more relational their behaviour becomes. In simple terms, they can develop professional friendships and increase the likelihood of group think. This leads to a higher likelihood of not challenging self-interest and subjective self-assessments when skills matrices are developed. It also leads to extending a fellow director’s tenure rather than saying goodbye to someone you have become friendly with and facing the unknown of new personalities and inputs. In these situations, the board skills matrix evolution

stalls and becomes focussed on the past rather than the future. Strategic ideation, risk analysis and executive challenge also decline as history and group think take-over.

Consultants can identify the root cause and push the development of the skills matrix. However, the real solution lies in shortening director tenure in the Constitution to 7 years with extensions of 1 year capped at 2 extensions. With a 7-year tenure, a board of 7 – 9 directors will be recruiting every year or 2nd year bring in new skills and building the vibrancy of the board. This in turn increases its agility to respond to a fast changing and volatile external environment.

Conclusion

It is important for Board’s to have a skills matrix and review it annually. To improve the quality and effectiveness of your skills matrix:

1. Independent assessment of the skills and experience required.
2. Utilise clear descriptors for the rating scales to guide self-assessments.
3. Ask for evidence to support the self-rating.
4. Utilise additional assessment approaches. VUCA Trusted Advisors recommends director peer review.
5. Limit board tenure to 7 years with 1-year extensions capped at 2 extensions.

Please contact Paul Geyer paul.geyer@vuca.com.au to discuss this article.

Paul Geyer
VUCA Director