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It's really important to listen to what people say, but it's even more important
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to listen to what they think. Half the decisions you take which go wrong are because you did the wrong thing and half
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of them are because you chose to do the right thing, but you got the implementation wrong. Risk appetite is
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about the risk that we are prepared to take on. Risk tolerance is our ability to withstand that risk if that
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materializes. >> Welcome to grit in the boardroom. I'm Erica Norris. Today's guest is Patrick
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Dunn Obbe, a leading voice in board effectiveness, governance practice, and he's also the chair of board Delta.
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Welcome to Grit in the Boardroom, Patrick. >> Great to be here. >> So, you've worked closely with chairs
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and CEOs um and executives for decades. What do you think separates the productive relationship of CEO and chair
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and an unproductive relationship? >> Yeah. Well, I mean I'm a mathematician by background and I'm dyslexic. So I
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tend to see a lot of things in terms of mathematical images and my image of this
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is a ven diagram. >> So I think where it works really well you have a healthy level of
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intersection. So you've got clarity of role on each side. So for the board that's ensuring we've got the right
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strategy, the right resources, the right governance for the executive that we've
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got uh you know good they're delivering developing the business plan and strategy and they're maintaining
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financial operational integrity. Where it doesn't work is where those sort of two plates two circles move apart and
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you have a sort of parallel universe type situation or they come too close. Yeah. and the board is and the chair is
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trying to do the CEO's job. Um and so I think it's talking about it. It's good level of respect and trust. Um that's
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where it seems to work well and where I'm chair I you know that's one of the things you really got to focus on.
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That's a key key relationship. >> Yeah. And do you think if you're new to the role and there's a new chair coming
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in or if you're an existing chair and you have a new CEO, it can be quite difficult right at the beginning of a
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relationship to be able to work out what what works and what doesn't work. Any ideas on kind of where to start with
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that sort of thing? Yeah, I mean I uh the latest chair role I have is the Royal Voluntary Service which I took on
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in December 23 and I remember in the you know in between being sort of appointed
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and starting uh you know I had a great chat with the CEO and you know the first chat was all about you know getting to
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know each other but also how are we going to work together and then the uh agenda for the first meeting where I was
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chair I chose to um basically focus that agenda on how are we going to work together as a board and how are we going
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to work with the executive because there was a bit of a reset moment. Um and I think if you think about it, if you talk
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about it, if you reflect, if you give feedback, uh then it then it all works. I mean I have a the two situation where
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chair I I have a weekly catch up with the CEO. Sometimes it's very quick, sometimes it's a bit longer. There's no
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agenda. um we just sort of talk about what you know stuff that's going on, things we need to think about. Sometimes
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it's thinking about the board meeting after the next one. >> Um that that that kind of thing. Um and
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um yeah, I've got one of those this afternoon. So u it I think it's just a constant
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>> kind of um thoughtfulness. >> Yeah. And are those the right sort of forums to to ring up bring up challenge
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and kind of questions about how things work? I presume if you have that opportunity to catch up open discussion.
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>> Yeah, they can be. I mean I I like a sort of little and often uh approach to to feedback rather than saving it all up
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for one day in a year's time. Uh so you know we will also reflect either the evening or the morning after a board
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meeting and you know one of the things we do in the in the boards around chairs we have a sort of 15 minute reflection
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at the end of each meeting we talk about how did we do did we rush that did we take too much time on that are we sure
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we you know how we've left the management feeling those kind of things and I get the CEO to do the same with
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the team and anyone else who's come in from outside to present and then the following day we'll usually they have a
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chat about, you know, we put the two bits together, say, well, what do we learn? Um, and then I might be giving
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individual feedback to uh to a board member or they might be giving individual feedback to me. Uh, where we
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might say, you know, well, I think you went in a bit hard there. You know, it was a fantastic point, but a little bit
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hard. You know, don't normally want the CFO crying kind of thing. So, you you'll have that
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kind of thing. Yeah. Um and um and I think if you encourage people to give feedback on you, you automatically get
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the right to give feedback and and I find if you treat people with respect, you're straightforward. There's no kind
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of side or game playing. Uh it it kind of works. >> Yeah, that sounds like a really good way
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of reflecting on the meeting. Most organizations that I've been in get through the agenda and then instantly
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people are packing their bags as soon as they go right a no a great let's just get on out
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>> but to have that opportunity to reflect must really help particularly in the moment
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>> I think so I think you know it's powerful in the moment and it's powerful afterwards so we might have that
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reflection you know that evening the next day about the board meeting and then in our next weekly catch up we'll
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probably maybe have some additional thoughts about things or you know you might say yes we want to do that um but
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you know there might be quite a lot of feedback about the way that we're going to implement and do that. So sometimes
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it's not just about you know taking the decisions. It's also you know scrutinizing the implementation and
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making sure we're comfortable with with all of that side of things too without getting into the weeds.
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>> Yeah, it's a bit of a balance. It's about being human I Yeah, I think so. Yeah.
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>> Yeah. It's interesting. You talk about um kind of gritty situation. You talk about CFOs crying. I mean, that's that's
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not a great place to be. >> That didn't happen where I'm chair, but but I have experienced that in a former
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life. >> Yeah. Because it is how you give that feedback and how you challenge. >> Yeah. I think something that I found in
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boardrooms is where there's a poor culture, you can end up with people pitting themselves against others. So
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they I've seen the CEO bring some of their management team in who are potential succession um people that
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might move along the track and they've been I suppose put in a position to made to be look a bit like a fool. So that
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that CEO felt more comfortable being with the board and thinking well actually look they weren't that great
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were they? They can't be my successor because look what happened in that meeting knowing full well having sat on
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the outside that actually that was they were almost set up and put in that position. It's not a great culture of
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course. >> Yeah. I think I think most canny chairs who've been around a while would had
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would see that coming and not allow that to happen. >> Yeah. Um, and you've got to be a pretty
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insecure CEO to do that. And I I would say to a CEO was sort of maybe limbering up to do that. You know, actually,
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you'll show weakness if you do. You'll show strength if you let them speak, if you don't finish their sentences, if you
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do >> those those kind of things. I had a lot of experience with that in the, you
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know, in the private equity world where I was for for quite a long time. >> What sort of experience did you have
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then? Was this as as chair or were we talking more as an executive? >> As an Well, I I was uh at 3II for for 26
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years. So, all sorts of types of investment, venture, growth, buyout, rescue, all that kind of stuff. Majority
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situations, minority situations. Um, and you you learn a lot about sort of board
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life. Um, and the the many different types of CEO there are. I mean, we would make I'd say, you know, we make serious
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money from uh often people who were, you know, maybe a little dysfunctional, maybe not, maybe too rampantly
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entrepreneurial. Um, but finding a way to bring out the best of those characteristics, but surround them,
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support them with uh people who would moderate some of the darker side. Uh, and just being clear with people, you
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know, look, we're not going to put up with that. Yeah, >> you can't do that. You know,
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occasionally you have to do that. I think if you say it with a smile, it's usually better.
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It's a very unique situation I think particularly with executives that sit in board meetings to have their bosses in
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there scrutinizing them and even the peripheral let's say bosses if we talk about non-exec director talk about CEO
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reporting into chair >> those other people that will also carry some weight in the decision of you know
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what's going right performance management that sort of stuff >> and most of their interactions are face
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to face and in real time and doing their work as opposed to most line management
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responsibility. You delegate something and you leave them to get on with it and you see the result. It moves up the
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chain. Yeah. >> But the board has to see the thought process that goes behind whatever that
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is. Um >> could be quite exposing. I guess >> it can be. I mean if you've got a very
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big decision to take as well. I think the I've never really liked because I don't think it's a very effective way to
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make a decision the idea that you have a big decision. You kind of tell the management you want a paper. They kind
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of guess what you want in the paper. Then they send it to you a week before and it's usually too long because
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they're guessing what might you might like and then on a wet Monday morning or whatever it is, you kind of in an hour
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or less you decide. I think that's a kind of vulnerable way to make a big decision. So I prefer a more iterative
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process where you break the thing down and you have a conversation about well you know really what is the decision
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we're taking and when should we take it and how should we take it and who should
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we involve and what information do we want to see in a board paper and then you have a kind of second conversation
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which is what's our preferred route which is you know the management giving you a sort of set of options in a
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recommendation you know the the cheap and nasty one the ridiculously expensive one or the one they want Uh and then you
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you kind of you know you decide what's your preferred route and then a third conversation where you you're finally
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confirming that decision but you're spending most of that meeting thinking about the implementation because crudely
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half the decisions you take which go wrong are because you did the wrong thing. >> Uh and half of them are because you
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chose to do the right thing but you got the implementation wrong. So I I think that process and and making sure you've
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got the time doesn't have to be over a long you know elapsed time but I think breaking it down into three helps and
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you see and you watch how the management kind of you know prepare the information
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deal with the challenges through those three sort of uh sets of experience I think you learn a lot more than if they
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just do your paper. Yeah, >> I think a lot is a lot of time is wasted by management teams and boards producing
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papers when people are guessing what should be in the paper. I think that of those things I said, one of the things
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that's really good is, you know, what information do we think we need to make this decision before we make it, not
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when you're trying to make it. >> Yeah, sometimes it can be difficult to find the time. And maybe this says
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something to the decision-m process before that point. But if things are business critical and they are real
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time, make a decision now. How how does that get managed? Because that's a different scenario all together.
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>> I think I I mean I break it down in in I use three a lot. Uh it's a human thing
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but um I I think if you break it down into okay, so we have this decision to take. What do we need to do before we
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take the decision? what do we need to do during the decision so we get constructive challenge and all the rest
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of it and then as importantly you know what are we going to do after we've made the decision how are we going to follow
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through and I think if you think about how can we make the best decision you kind of balance those three things right
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so so raw voluntary service to bring it to life we've just launched this new uh national volunteering platform go um
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it's only three weeks old but it's already looking like a big hit and Um, we did we did all that. This was a
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massive investment for us. Um, and you know, high-profile, you know, stakes are high. If we it up, then we wasted a
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lot of a lot of money. Um, and we we just we did that. We said, you know, well, we need to decide whether we're
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going to do this, when we're going to do it, how we're going to do it. Um, and we
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we just broke things down into a very simple kind of set of process. So, you know, and we've launched it slightly
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ahead of time within budget and it works. Um, but we probably spent more time at the front end
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>> than many people would do. Um, but actually we got the benefit of that through, you know, the process and the
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buyin and all the rest of it at the back end. So um yeah >> when you talk about buyin is that buyin
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from who? >> I think when you're thinking about buyin I mean if you're a chair you have to
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think about you know you have to think about the board you have to think about the executive team you have to think
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about the organization more broadly and you have to think about your main stakeholders.
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So uh you know if I think of in in in private equity land that's pretty straightforward
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and for most organizations you've probably got half a dozen main stakeholder groups. you know, they there
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might be more, there might be a few less. And if as a board you're you understand what those stakeholders want
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and need from you, and you know what you want and need from them, and you got a way of, you know, measuring that so you
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know they're getting what they want, you know, you're getting what you want, then
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usually, you know, you can get the buy in that you want. And I I found at 3II, I mean, one of my responsibilities for
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many years was uh I was on the operating committee, I was on responsible for investor relations. So yeah, we had
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25,000 shareholders. They're not homogeneous group. There's all sorts of uh types of different uh shareholders
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and you have to have an understanding of what you know what their motivations are
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especially when you don't necessarily like their motivations. You have to have a an idea of that and you have to have a
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way of you know explaining what you're doing that fits with, you know, their world. Um sometimes you know they might
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not agree with what you want to do and that's fine. At the end of the day you as a board have to make a judgment uh in
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terms of balancing those different uh those different requirements that other people have. Um but I think if you're
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clear and you understand what they want and what you want from them, it's much easier to do that.
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And what sorts of things thinking about as you say the the people that maybe don't agree is the probably one of the
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more challenging let's say approaches to take. Do you think that there's a particular way that you can engage with
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them or questions you might ask yourself or how you might approach that? Particularly if it's something that
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really does annoy you and just think why on earth is this particular group of stakeholders whoever they are thinking
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the way they think totally don't agree with it cannot understand it but obviously you need to start to unpack
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that a little bit so you can at least bring them along the journey. Yeah, I I think I mean I grew up in a very
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conflict rich environment in in Liverpool. I was born in born in Topsters and delivered fruit and veg
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around Topsters when I was at you know when I probably shouldn't have been but um and learned a lot about conflict
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management and um and risk management um and I think you know later on I realized
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you know reading and bit being better better educated that um fundamentally you can do five things in a in a
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conflict you know you and Thomas and Kilman the sort of world experts on this nailed it. They said, you know, you can
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compete, you can collaborate, you can compromise, you can avoid, or you can accommodate. And the thing to be clear
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about is, you know, which one of those do you think might work with that person or that group of people? Y
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>> on that day on that issue with that atmosphere in the room with all the contextual stuff and sometimes um
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avoiding has a bad connotation. and you know it feels like oh we're you know we're we're we're wimping out. Whereas
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actually in that moment in a board meeting for example it might be better to kind of um save the conversation
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um for afterwards or actually even better you might have anticipated. So I spend a lot of my time. My grandmother
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had this great expression as a kid. She was Irish. She had no education. And she
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said to me as a little boy, you know, it's really important to listen to what people say, but it's even more important
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to listen to what they think. >> And so before every board meeting, I'll often go around the room in my head
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thinking, you know, what would Joe or what will Mary or what would Erica think of this today? Yeah.
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>> Uh, and you know, I might know that, you know, Erica has strong feelings about
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this and I I might chat with you beforehand and we might sort of agree, you know, how you how you might sort of
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how you make your point in a way that doesn't derail the meeting, Erica. Um, or how actually if you're an introvert
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and and I find it fantastic to have introverts on boards. I think we've got a bias to extroverts in our society.
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>> Yeah. You know, I think sometimes before a board meeting, you can do quite a lot
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to help an introvert sort of feel comfortable saying something that they feel uncomfortable saying beforehand.
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So, a lot of it is in the prep. And I I did a LinkedIn article a while ago called Getting in the Zone because I was
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fussed that you know if you take elite performers in other fields, music, um athletics, they they've got all their
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training, they've got all their knowledge, they're all match fit, but still before that match or race or
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concert, >> they have this little routine to try and lift their performance in in that
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particular >> um concert game, whatever. Um, and I I don't think we do that as much as board
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members. And I've I've tried to do that for a long time to think, well, what's what if this is my last board meeting?
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What, you know, why don't we make this the best board meeting we've ever had? And um I'm a massive fan of Bruce
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Springsteen and that's his approach. He's done three and a half thousand concerts, but every one he wants to be
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the next, you know, the next one is the best. Um, and I think there's something about that that that can really help you
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and help you put the work in. >> Yeah. >> Because there's there's no substitute for the work. I mean, you you've got to
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prepare properly and also then get yourself in the zone. >> Yeah. >> Um, >> and how do you get in that zone? I know
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you spoke a little bit about going around and kind of thinking about what various people might say or react to
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various different gender items or even to each other potentially. How do you do that?
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>> So I I I generally start with um what should be the objectives for the meeting. So so if I'm chair there you
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know what do we want to get out of today? Well, of course, we want to make the right decisions, but we want to make
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them in the right way. And if uh so, for example, on you know, ro shows when I first became chair, I didn't know the
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board. We had some new board members. Um we were coming but not quite out of a of
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a turnaround. And so there are priorities you know we need to make these decisions but also I'm thinking
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how can I build in you know when you take over as J how can I build the right level of constructive challenge how can
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I make sure you know the execs who aren't the CEO feel very comfortable speaking in a meeting how can I bring
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out that inter and this is not like a one meeting trick you know you have to think that so over the course of you
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know several months I mean I so I I have a sort of set of objectives I set for myself for each board meeting which is
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you know really need to make the right decisions on these three things. So you can imagine when we were making the the
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decision on should we shouldn't we do this platform that's pretty key. Yeah. >> Uh but then um actually you know I want
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to make sure we really make the most of this new non-exec. Now sometimes it's tempting people sort of get into that
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well I'm you know first meeting I'll just watch I've never bought that uh I've always thought if you've got
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something to add had add it uh and so I will make sure before the board meeting I spoke to you say you know really want
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to contribute you know there's this item I think you'll be particularly useful on
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be great if you could be the first person who could speak on that and then they're feeling in that first board
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meeting I'm making a difference >> and the executive even noticing, oh wow, that person's got something really
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genuine to add. You know, they don't go away thinking, well, I didn't really get
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to know them because they didn't say anything. Um, you have to get the balance right.
00:22:00
>> That is interesting. >> But I think having the objectives for the meeting. So, you know, in in workout portfolio
00:22:09
land, I would my main two categories objective would be I want to know a lot of stuff because I've usually come to
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it, you know, I'm just fresh in the situation. Yeah. and I have to assume I'm ignorant. Um, and then I also want
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to build some rapport and some credibility because if I've only got a marity stake and I need to influence, I
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can't tell them what to do. Um, then, you know, I need to build some kind of rapport, credibility with them because
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otherwise, you know, why would they listen to me then if they don't have to? Um, so, uh, I'd have, you know, be be
00:22:45
thinking about how do I do that through the meeting. H I think potentially it's some of your experiences as you've kind
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of moved along having done executive roles and then moving to do various other roles that gives you that
00:23:02
>> train of thought because I I don't think I have ever heard a chair say that they
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have helped direct the individual preirst meeting in a particular direction as to which sort of agenda
00:23:17
items might be helpful. But I can absolutely see the value in that because >> those let's say a new non-exec director
00:23:25
doesn't know what the other skills necessarily on the board other than the biographies and everything that's just
00:23:30
in front of them superficial. Exactly. But it's really interesting that you've brought that in because that does allow
00:23:37
people to talk and I've spoken to someone else on my podcast and interestingly they said the complete
00:23:43
polar opposite to you. They said sit in the board meeting and say nothing and that's absolutely fine. And that's all
00:23:47
that's expected of you, which is not necessary in my own personal view. That's for sure. Because you you have
00:23:54
statutory duties and you are equally accountable as everyone else is on the board. The day that you step into that
00:23:59
boardroom, it doesn't matter the level of experience you have. >> Yeah, >> exactly. But yeah, what are your
00:24:03
thoughts? Yeah, I mean the other thing that I do which I think is quite helpful is for a new non-exec, we usually have a
00:24:09
chat deliberately, you know, we'll say we'll chat and I will ask them what they thought of the board papers because
00:24:13
often a new board member has different take on on on things. Uh so that's really helpful and then I'll fix up a
00:24:21
chat for the week after >> y >> few days after the board and I'll say you know what did you think at the board
00:24:26
meeting and I'm genuinely want to know what they thought. I genuinely want to know if there's things I was doing as
00:24:33
chair that got in the way or things that were helpful that I could do do more of
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and and you know their take on on um how the conversation went there's real value
00:24:44
in >> in that. So I think the person who says you know just just sit there and be
00:24:49
quiet that might work for them. I mean I think with a lot of these things it's what works for that group of people.
00:24:57
that really really wouldn't work for me. Um I'd feel I didn't add any value. >> Yeah. uh and I'd feel there was a lost
00:25:05
opportunity uh with within that because I'm also interested in how people react to points
00:25:11
you make because it's very telling sometimes when you know if you get an overly defensive
00:25:18
CEO or CFO um where they're not open uh to to different ideas, different thoughts,
00:25:26
they kind of want you to rubber stamp the decisions. >> Yeah. And and I think again I I would
00:25:31
say to CEOs I I would coach that that that's a sign of weakness. That's not a sign of strength. Um,
00:25:39
>> it sounds like a lot of this comes down to emotional intelligence of kind of being able to read the room, being able
00:25:45
to empathize with other people, to have some humanity and some humility about things and kind of step up, I suppose,
00:25:54
and be be who you are in that meeting, but also think about everybody else. >> Yeah, I think so. I mean, early on,
00:26:02
possibly because of my background, possibly because of imposter syndrome, I I would often feel at odds with the
00:26:09
consensus and almost worse than that, not able to have the right articulation to change people's minds. I re, you
00:26:17
know, I didn't have the same uh language skills. And so and I found that that quite uncomfortable, but I learned to
00:26:28
watch and learn and I'd learned that as a kid where where I was, you know, you really got to watch and learn. And so I
00:26:35
I would just watch really good chairs and and one of the things I discovered I'm a statistician as well M
00:26:43
statistician I think I mentioned then I realized actually I did a statistical count of something uh which was what's
00:26:50
the first word that someone uses when they're going to constructively challenge. I thought that might be quite
00:26:56
an interesting thing to know. >> And it was uncanny that the the really good chairs and really good non-execs
00:27:03
that I watched always seem to start their sentences with the word I. So it was I wonder if you could just go
00:27:11
through that again for me, please. I'm not sure I understood that. I wonder what our competition would think of that
00:27:17
or how will they react? It was always like and and we're often taught not to say I. Um so it may feel
00:27:24
counterintuitive to some people despite their egos but um and and I started to experiment and I suddenly found it was
00:27:34
much easier to constructively challenge when I when I did that. uh and almost you know um it it just liberates sort of
00:27:45
other people because it's not a challenge because you're saying you're taking yeah I'm not sure I understand I
00:27:50
wonder if I feel yeah or you know occasionally I might say I'm not sure why but I'm not sure I feel that
00:27:57
comfortable with that and leave a pause. It's always fascinating to see what happens when you do that.
00:28:03
>> Silence is is really interesting because people do tend to feel that silence.
00:28:09
I've read a couple of books on exactly that of just the pause and even if you have to count in your head because the
00:28:15
pause seems difficult. >> You do tend to find people certain people certain personality types will
00:28:22
jump in and hate that silence and feel like they just had to keep talking and then sometimes you get more information
00:28:28
out of them than they otherwise would have given. >> You get a lot and eye contact can be the
00:28:31
same thing. So you I I learned from a policeman I was helping a or for a long time I was chair of a charity that
00:28:38
helped young people manage conflict more effectively and a copper told me one night he was in reading and that um if
00:28:44
you just stop a young person in the street and you just look at them there's an 80% chance they'll speak.
00:28:49
>> Yeah s I found anxious finance directors are just the same. >> Yes, that doesn't surprise me. And yeah,
00:28:58
they often give the game away. As you say, that anxiety piece, they will explain what it is that makes them
00:29:04
anxious. Sometimes that's something you need to know. Sometimes it's just helpful because you can then support
00:29:08
them. Sometimes it's information that they otherwise wouldn't have disclosed. >> Yeah. And you got to be careful with
00:29:13
that because you don't want to >> be intimidating or, you know, give nothing. Yeah, I think in most the best
00:29:22
relationships are, you know, there's a good balance of of that and there's a trust that that emerges, but but
00:29:29
occasionally it's quite a helpful tool. >> Absolutely. You are right. It shouldn't
00:29:34
be used as a a way of unbuttoning somebody or forcing them to do something that they otherwise shouldn't do to
00:29:42
manipulate them. >> Yeah, that's not the right. But on the flip side, if you feel that
00:29:48
there's something that might actually be hidden, >> Yeah. >> it's a good, you say, it's a good
00:29:53
technique. >> Yeah. Absolutely. >> To be able to implement. >> So directors, lots and lots of them,
00:29:59
they talk about risk appetite. Um, it seems to be a bit of a buzzword for many, but very few define what that
00:30:07
really means. um how do you help people to articulate that risk appetite so they
00:30:14
can make real decisions based on whatever risk appetite they may have. So I think like a lot of things there's
00:30:21
there's averages are very terribly dangerous things. They they conceal a lot uh of truth averages. So I don't
00:30:30
like to think of a risk appetite. I thought I like to think of risk appetites. So I think you know if you're going to
00:30:39
take big business risk then you need to have low financial risk. you know, if you're going to take big financial risk,
00:30:47
then you need, you know, low low business risk and so on. Um, so I I like to categorize risk. Uh, and then talk as
00:30:56
a board, you know, what do we feel? Uh, so for example, um, again at Royal Volunteer Service, we've we've done
00:31:03
this. We we've come out quite strongly uh from a from a turnaround period. Uh, we need to re rebuild our reserves. So
00:31:12
we're talking about, you know, well, in terms of our risk appetite, so for every
00:31:17
pound of surplus that we might make above and beyond what we plan to, what we going to do with it? So we we're
00:31:24
going to invest half, bank half, build back our reserves, or should we bank 70% so we build back our reserves more
00:31:33
quickly? That's a proper risk appetite conversation I think >> as opposed to you know is our risk
00:31:40
appetite a seven or a six. >> Yes. >> I think that's sort of futile. Uh that doesn't really get there for me. The
00:31:46
other thing I think is quite important is that we don't confuse risk appetite with risk tolerance.
00:31:53
So risk appetite is about the risk that we are prepared to take on. Risk tolerance is our ability to withstand
00:31:59
that risk if that materializes. And I think when people are thinking about risk tolerance, they often think
00:32:06
about events and and that again can lead to the wrong conclusion because what you really want
00:32:13
to think about are consequences. So a number of different events could cause the same consequence and often I think
00:32:20
if you look at you know generally when things are challenging in a business it's usually not one thing. It's usually
00:32:26
you know a number of things combining like the airline accident you know it's very seldom one single cause of failure.
00:32:31
it's usually combinatorial risk rather than singular risk. And so I think getting people to understand
00:32:38
consequences. >> Uh and co I think taught us a lot. I mean it was a horrible terrible thing
00:32:44
but it did lead us to think about some things perhaps in a more a healthier way than perhaps we might have done before.
00:32:52
I think it's time for a lot of us to change the way they think about risk in a number of ways. And I think the the
00:33:00
combined audit risk committee is one of those things to think about because of the nature of the risks that we're
00:33:07
encountering in this sort of current phase of the world. >> Yes. >> Most of them most of the big risks that
00:33:13
most boards spend their time worrying about are the non-financial risks. The financial risks obviously most things
00:33:19
end up in a financial situation, but you know they're the other things. You know,
00:33:24
cyber being the most notable at the moment. And so you know the com the composition of an audit risk committee
00:33:30
is generally financially oriented people. >> Um and that might not be the best combination. Also talking about
00:33:39
reviewing the audit and financial control systems things might not be the the easiest mindset to transition into
00:33:46
you know a broader risk conversation. So some regulators you know like the risk committee to be separated out. Um I I'm
00:33:54
thinking you know in a number of places where where I've been um helping people that that actually in that circumstance
00:34:01
it would be better if they had a distinct risk committee with a different composition and more time uh on risk you
00:34:09
know in terms of that balance of time spent on audit and time spent on risk. >> Yeah. And what do you think
00:34:15
composition-wise when you talk about if you were to break away the risk committee um from the audit committee um
00:34:23
as you say not for regulatory purposes just because you feel that's there's enough of a topic there and enough of
00:34:29
discussion that you would like to do that as an organization. What types of people what types of experience or
00:34:36
skills would you expect of people that would be on a risk committee? You'd want quite a diverse group of of people in
00:34:43
terms of experiences, mindsets, characters, all of that. It's interesting when I became chair of the
00:34:48
operational risk committee at 3II, uh uh the committee was composed of, you know,
00:34:55
some of the best, smartest investors we had, but they were all of a certain generation. And and I thought actually
00:35:02
what we really need is a couple of people who were a bit wilder and uh you know, we're thinking about things quite
00:35:08
differently. Yeah. And so we we changed the composition and it was really valuable uh to do that. I think um it's
00:35:16
probably a separate topic but I think a multi-generational risk committee is really valuable and if
00:35:22
you have got a nextgen board you know maybe I mean I I think if you have got a nextg board it's good to have a member
00:35:28
of that nextg board on every subcommittee anyway but I think on a risk committee I'd probably have a
00:35:34
couple um who you know they're thinking differently and um they're aware of different stuff they talk about
00:35:41
different stuff and they feel differently about things and and that's probably quite a helpful thing to have
00:35:46
on the risk committee because they may be seeing risks that you know you can't see.
00:35:51
>> Yeah. And can you just talk a little bit more about that nextgen board kind of
00:35:55
concept? >> Yeah. So I've been a fan of this for for ages and so they're generally advisory
00:36:02
boards. So they're not involved in governance although some people put the chair of that nextg board on the main
00:36:07
board. So when I was um chairing EY foundation you know that's the model we had then um they uh nextgen boards can
00:36:16
be uh either a younger group or they can be a multigenerational group. The word nextgen can mean like the next
00:36:24
generation of people or it could mean about a group of people who were advising on us on the next generation of
00:36:30
the organization. And so it's used in two two different ways. They generally have a sort of two-year life. Uh so you
00:36:40
rotate them >> and when people start set up their first nextG board, they generally talent spot
00:36:46
for the first one and then they the second one they they have an open application and that's so they get the
00:36:52
model sort of refined. Um they can be either interacting principally with the executive or with the board or with
00:37:01
both. um it's generally a good idea to give them some kind of legacy project for their two-year spell. So where I've
00:37:12
been involved in setting them up, we generally give that firstg cohort the legacy of coming up with what they think
00:37:20
is the right model for the nextG board going forward. The EY Foundation is now on its fifth cohort and and you know the
00:37:28
model has been refined as we've gone by but a lot of the work that first cohort did got it nailed pretty much and and
00:37:36
you know we've developed it from there. You because two years is such a short time you really need to focus as well.
00:37:45
The three things that people tend to want to get out of an exg board are their insights because they've got
00:37:50
different insights. they want their challenge because they might challenge in a different way or they might find
00:37:55
things challenging that other people don't. Uh and there's also an element of legitimacy. I think you know one one
00:38:02
thing that's really interesting is if you look at churn rates by generation as opposed to by function or any other
00:38:11
thing. I think a lot of people are finding churn in those younger generations is higher than it is in the
00:38:17
the older generations. Um and you know a way of reducing churn is is younger people in organization feeling they've
00:38:25
got some voice some say uh in it but of course if you have an exgim board and you say you know we really want your
00:38:32
views um and then you don't listen to them you actually make it worse rather than better. So you've got to go into
00:38:39
this with you know an open clear mind uh about about what what you're doing. You
00:38:45
have to train and you have to provide the support. So um w with nextgen boards I'm involved in you know they each each
00:38:53
member of the nextgen board has an a board buddy. >> Okay. >> Uh so usually if I'm the chair I'll be
00:38:59
the the chair of the nextgen's buddy. Um we put one as I said before on each committee. I think that's really
00:39:06
valuable. Um and um and and you you know you get all sorts of surprising things happen you know good and good and bad. I
00:39:17
wouldn't also restrict your nextg board to fasttrack people. That's the common understandable thing to do. But
00:39:25
actually, it's less diverse if you do that. Um, and uh, I think you can benefit from having, you know, a broader
00:39:34
range of abilities um because it's the thoughts you want, not necessarily, you know, other things.
00:39:41
>> Yeah, that's really interesting. It's definitely something that organizations
00:39:46
can consider. >> Yeah. >> Seen them in a few organizations, but not so many. >> Oh, well, we found when we did the five
00:39:53
generations at workbook, um found over 200. >> Wow. >> It's quite a lot. What sort of size
00:39:59
businesses? >> Uh you've got everything from um you know, you've got Gucci, Seammens, FT,
00:40:06
AOR, Storowenza, you know, lots of very large businesses. And then you've got lots of tech businesses have them. Um
00:40:15
and um it's it's becoming more common in the social sector as well. >> Um and I think you know if you if you
00:40:25
again like most things you know you you you do that before, during after thing and you think well what do we need to
00:40:30
think about before we set one up. Um and the training most people quite quickly get to we need to train them. What they
00:40:40
don't get to as quickly is we also need to train the executive who will be interacting with them because you know
00:40:46
you might say to your nextg board we really want you to challenge us you know as a board we want your insights we want
00:40:51
all that and then you know if you're the executive you're the ones receiving that
00:40:55
challenge mostly they go who are these who are these people you know I've been here 20 years and you know and and I
00:41:02
didn't get to be on the board that quick and you know so you have to manage so I
00:41:06
found where I've helped people establish Um, training the executive is is as important and the board is as important
00:41:13
as training the the next gen the nextg board. >> And if these people um kind of potentially get a a bit of a feel for
00:41:22
what it's like to be on a board, surely that can be a good thing. >> Ah, it's a fantastic thing because I
00:41:26
think we're developing with these a pipeline. >> We're developing board experience and
00:41:30
we're breaking down the generational barriers in that. Um, I mean I I remember for the EI Foundation was
00:41:37
fantastic young woman who was um uh on the next board and she was the one that we put on our nominations committee and
00:41:46
her radar was the best of all of us. Her uh way of questioning was stunning. Um and so very quickly
00:41:55
everyone wanted her on every interview panel that you could think of. She's now a litigation lawyer
00:42:01
quite successful uh at this early stage but uh it was great to see that and it changed a few perceptions I think around
00:42:10
what you know what what young people can do. >> I wonder if it's slightly more sector
00:42:15
specific in so far as sectors that have um the kind of next generation buying their products or that they are very
00:42:25
focused on that. I wonder if you looked at other organizations. >> We did. Yeah, we did. So, um uh yeah,
00:42:33
lot lots of the organizations in the book are, you know, got really big demographic sort of
00:42:38
>> balance. I think your point around the customers and um and suppliers uh is really key because if you really
00:42:48
want to understand your customers, I mean you'll do your market research, you'll do all of those things, but
00:42:53
there's nothing like having someone inside saying actually that's not how it is really.
00:42:58
>> That's not why we buy that. um you know because often you know market research
00:43:04
you know sophistication of it grown significantly but sometimes you miss things um and actually I realized when I
00:43:11
was on the board of the University of Warick we we had two student uh representatives on the board and and
00:43:18
occasionally they would you know we'd we'd we'd all be in this mindset of thinking ah that's the way it is yeah we
00:43:23
do that and the students will love it and then they'd go not really um for The most graphic
00:43:30
example of that was when we were deciding to outsource some of the cafes and restaurants on the campus and we
00:43:39
decided, you know, we'd go with a certain supplier and we decided on the size of it or that the team did and we
00:43:45
sort of were endorsing the decision and one of the students said, "Nah, that's just nonsense. That that's that's going
00:43:51
to be nowhere big enough." And all of the research said, you know, this is the size. And the the student stood his
00:43:58
ground and and said, you know, well, you know, it was about, you know, you just don't understand how we date these days.
00:44:05
Uh, what do you mean? He said, well, you know, we don't like in your day, you probably, you know, asked someone to go
00:44:13
for a drink that evening. We don't do with that. We go and have a hot chocolate straight away. And I think we
00:44:19
were all sitting there thinking, hot chocolate? How how exciting is that? Um and um so
00:44:27
we actually built them twice as big and we ended up building twice as big as we were originally going to and they
00:44:35
weren't big enough. >> Wow. >> So that that is a very small example but we totally misunder you know we did we
00:44:43
didn't understand that. Um so you know trivial example but interesting one >> and looking at people kind of moving up
00:44:52
um CEOs if they then decide to move on and do non-exec director career or they want a portfolio non-exec director
00:45:00
career alongside what they're already doing um as an executive. What do you think is maybe a couple of things that
00:45:08
they need to really consider um not necessarily about the organization itself but how they behave and how they
00:45:13
are on the board how different that is being the other side of the uh table. I mean three I I often used to encourage
00:45:21
CEOs who you know were not really letting their executive team have full delegated okay
00:45:30
>> sort of thing and and one of the ways I would do that is is is help them get a
00:45:34
non-exec job somewhere else >> one so they couldn't be as you know in the executive's face every day all the
00:45:41
time to they would learn and they would watch another CEO do their thing in their way and they'd watch the non-execs
00:45:49
do that. And also, I think if you haven't had if you're a CEO and you haven't had a non-exec experience before
00:45:57
you sort of stop and go down the plural route, I think you need a decompression space zone time. Yeah.
00:46:06
>> Whatever. >> Go away for a month or something. But just clear your head because because the whole
00:46:14
nature of the exec role, there's so much pressure on you. you know, you're constantly prioritizing. Um, it's why
00:46:20
when I talked about conflict management before, you know, CEOs tend to be high and compete and avoid because they're
00:46:25
constantly deciding, well, I'll do that, I won't do that, and their time is tight. If you're a non-exec, you need to
00:46:30
be more reflective. You need to, you know, think things through more beforehand and all the rest of it. And
00:46:37
you and and that's a kind of way of being as much as the skills and experiences that that you have. And you
00:46:42
need to kind of develop develop that, I think. Um uh so that that's one thing. The second thing I think is really
00:46:51
encourage feedback. Um and really be free be experiment. Uh I don't think in general board people
00:47:06
you include myself in this experiment enough. >> Okay. >> Uh we don't take the risk of trying out
00:47:12
a new approach, a new way of doing something. um that kind of thing. I think we should be we should experiment
00:47:18
a bit more. >> Wow. Well, that's really interesting. Thank you very much. And thank you also
00:47:23
for your time today. Um it's been fantastic to catch up. >> Real pleasure. Thank you.
00:47:29
>> It was really interesting to have an opportunity to speak to Patrick today. Um, I learned quite a lot from him about
00:47:35
what it's like to be a chair and what it's like to have those new non-exec directors coming in and what sorts of
00:47:41
things the chair can do to support um what that non-exec director will then feel in that meeting and how they'll be
00:47:48
able to contribute. I think he was very clear that people that join the board should be contributing hopefully from
00:47:57
day one even if it may not be as much as other directors. And I think that's a really good starting point for anybody
00:48:02
joining a new board. Uh we spoke a little bit about CEOs and how they can step up to be non-exec directors and he
00:48:10
suggested a break was sensible in order to be able to get in the different headsp space that's required to be able
00:48:14
to take on a non-exec director role as opposed to an executive role. Finally, it's about scrutinizing decision- making
00:48:21
and what that board does. So when decisions are made, I think it's important to scrutinize why certain
00:48:29
decisions were made. Not necessarily to point the finger, but to bring forward um some learnings and to be able to
00:48:36
implement those for the future. Um but it also helps the board to kind of move forward. I know that Patrick spoke about
00:48:43
at the end of each meeting having almost a bit of a debrief before everybody leaves to say what works and what didn't
00:48:48
work with regards to that meeting, but that can be done as well with regards to projects. Um, and I think that that
00:48:54
could really support uh businesses improving on an incremental basis moving forwards. That's it for this episode of
00:49:00
Grit in the Boardroom. Thanks to Patrick for sharing his story with honesty and insight. And thank you for listening. If
00:49:07
you found this conversation valuable, please follow the show and share it with someone who leads through complexity.
00:49:13
Until next time, stay thoughtful, stay brave, and stay in the room.