Operating Environment Challenges the Board's Competences

The competence of a corporate board can be assessed and developed just like that of operational management.

Ville Blåfield, 30.06.2016

All self-assessment requires from the chair and board members is an open attitude and self-initiative to update skills.

Seppo Ikäheimo, Vice Dean and Professor in Accounting at Aalto University School of Business, examines how a corporate board should measure and develop its own competence. “The competence development of board members is important when changes occur in the company’s operating environment,” he states.

How able and willing are corporate boards in Finland to develop their skills at the moment?

“Appraising board work has developed significantly over the last decade, especially in the case of listed and state-owned companies. Also bigger family-owned businesses have seen its importance. The current recommendation for the governance of a listed company includes assessing board work.”

How frequently should boards implement self-assessment and with which methods? Is a board in fact the right instance for appraising its own operations and competence of its members?

“If a chair conducts an open interview to other board members on the operations of the very same chair, identifying any development areas is highly unlikely. A genuine willingness to pinpoint ways to develop board work requires as diverse and objective information as possible.”

“Annual assessment of board work could simply focus on appraising the chair or be targeted at the entire board. Methods vary from highly structured, template-based online questionnaires to open interviews. Often self-assessment is combined with external assessment.”

How should the competence of board members be monitored and measured? How can the competence of a board be developed profitably?

“The competence of board members should follow in line with the corporate strategy and operating method. It is very difficult to develop the competence of board members within the board itself, but recruiting new board members is a quick way to put change into motion. That is why an overall understanding of the competence portfolio of board members is important. Bringing digital experts into corporate boards has been a major trend in recent years, which also rejuvenates the composition of the board.”

Should there be an input into training and competence development of board members similarly to company employees and management?

“A board is not a training place, although the competence of board members can be developed. Competence development is important when changes occur in the operating environment, such as legal reforms or surprises in the competitive environment.”

“Usually those involved in board work are presumed to update their information themselves. However, in my view it would be beneficial for the board to have a reasonable budget e.g. for updating their knowledge.”

Seppo Ikäheimo, Vice Dean and Professor in Accounting at Aalto University School of Business is one of the instructors at Aalto EE's Board of Directors program.

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