How much do directors need to know about the industry in which their companies operate? The answer to this question is more complex than one might think. When we interviewed directors across Canada about this issue, two key issues rose to the surface:
1. Industry knowledge on Canadian boards is lower than we expected;
- Only 58% of directors said their board met our target level of understanding the company’s strategy.
- Only 45% of directors said their board met our target level of understanding the risks faced by the company.
- 40% of the non-executive directors indicated they only had a moderate or limited understanding of the company’s competitors.
- 30% of the non-executive directors indicated only a moderate or limited understanding of the company’s industry.
2. The conversation on Canadian boards needs to be about “what level of industry knowledge is required on our board?”
This question needs to be addressed, at the very least annually, as the results have an enormous impact on director recruiting strategies, training and development activities for directors, and industry knowledge must be a factor in the assessment of both individual director and board performance. Other related questions that must be asked include:
- How much can or should we expect directors to know relative to the experience of the executive management team?
- Do we expect directors to have a comprehensive understanding or just enough to know what questions to ask?
- How current should their knowledge be when many directors may have retired from the industry?
Korn Ferry Canada’s Board Practice is the largest and most successful Director Recruitment team in Canada. Learn more.