Have you got your board composition right?
It’s alarming how regularly I see mining companies in transition make poor decisions about board appointments. These are the six biggest mistakes companies make.
It’s alarming how regularly I see mining companies making questionable decisions about who they appoint to their boards. While the appointed board members are usually talented, competent, and energetic – qualities that obviously make them attractive as board members – companies need to look beyond the individual attributes of board members to the overall composition of the board. It is what the board brings as a balanced whole that is particularly important as companies move through phases of their development life cycle.
Where are mining companies going wrong on board composition?
The Australian Institute of Company Directors’ website says the following about board composition:
“Board member renewal and the skills matrix are critical and deliberate decisions. Board composition is best when aligned to the organisation’s short- and long-term strategy. Board quality requires more than drawing on certain job titles, career paths and whether those already on the board know the director candidate. Of necessity, the nominations committee needs to be forward-looking.”
The key points here for mining companies are:
- Get the skills matrix right
- Align with the long-term strategy
- Don’t just appoint your mates.
This should all be obvious, but it’s easily forgotten and mistakes are regularly made.
Getting your board composition right
Let me run through some examples of the kinds of things I’ve seen over 30 years in mining recruitment and what I believe companies can do to make more effective board appointments.
Not choosing the right board for your stage of development
Large, higher volume, higher production number-type companies are sometimes akin to a factory in their complexity. Small entrepreneurial, exploration-type companies are more akin to a technology startup. The requirements of the individual skill level and the mentality required for each is entirely different; therefore, the kinds of people who succeed in these companies are very different.
Not getting the skills and experience mix right
Moving from exploration into pre-feasibility or from construction into production requires completely different skill sets from a board.
- If you’re moving from pre-feasibility into feasibility and your board has got five people and it’s still three lawyers and one accountant and one geologist, you’re probably going to make a mess of it. You need some engineers on there.
- If you’ve raised your $10 million and you’re out there trying to find something, then you probably need more geological expertise.
- If you’re in production, then you can probably get away with an engineer, a geologist, a lawyer, and an accountant. It’s about getting that blend right, at the right time.
- Some of this will sound perfectly logical, but it is about simply being willing to ask the questions and have the conversation.
Not aligning board composition with your long-term plan
Your board composition should reflect your direction of travel. If your five-year plan is moving into a construction phase, then you need people that have generally built projects before, so they can see the potential problems that are going to occur and provide that insight and leadership. There’s no point appointing someone who is an entrepreneur who is terrific at selling but believes everything will go perfectly with construction, because these things are complex and they never go perfectly. Your average entrepreneur who’s great at selling something from a seed in the beginning is not necessarily going to have any clue about building a mine.
Not choosing people with deep, relevant experience
There’s a lot of value in deep experience. There should be a lot of grey hair around the table (at least metaphorically). The right amount of experience (in terms of the number of projects and the size of projects someone has been involved in) really depends on the complexity of your project itself. As a general rule, if it’s a very large project with lots of moving parts, then you probably want someone who’s done it three or four times before, because the risk level is high. Even if your project is a bit less complex, you still want to recruit for specific expertise in a relevant field that plugs an experience gap on your existing board.
Leaving it too long to get the right people into place
You need to get a little bit ahead of the game and get your future board composition in place early. If you’ve got a very high chance of getting approval for financing, for example, then you probably need one or two who know about environmental risk or social governance risk on your board right now.
We’ve got developers that are now actually building mines. These companies can very quickly go from being quite tiny and quite entrepreneurial to needing big chunks of money. The kinds of people who succeed in those businesses can change overnight.
You need to get the right type of people onto your board early enough to provide real insight and leadership. I think some companies really leave it too late and, as a result, the banks don’t like the profile of their senior management and their boards (because they’re all stacked with entrepreneurs) and they can’t raise the $1 billion they need. While those people could raise $20 million from the market no problem, the step up is a whole different ballgame.
Founder relinquishment
I appreciate this can be tricky, particularly where an initial sponsor/founder retains a large shareholding and (quite fairly in some cases) wants to continue oversight of their investment and many years of work. Both board and founder have roles to play in this transition. The founder needs to look out into the future and make an honest assessment about whether they have the skills to compliment what the company needs to take its next steps. If they don’t, they need to make the potentially hard decision to sell down and leave room for others.
The history of business is littered with brilliant founders/entrepreneurs who tried irrationally to hang on too long and simply ended up being a nuisance and getting in the way.
I know already the examples that will be quoted, the likes of Andrew Forrest, Gina Rienhart, Warren Buffet, Steve Jobs and Bill gates, who attract a lot of attention. But I would argue while easy to put up as people who did make it work, they are up there in rarified air. For most of us mere mortals, our idea is either not universal enough, we are simply, not maniacally driven enough to pull off such a thing, or we didn’t inherit enough.
There are a small handful of examples in the exploration/deal making space, both in Australia and internationally, who I will not mention by name, but they have demonstrated a very clear focus on some combination of their core skills being exploration and deal making and made a lifetime of success out of it. I will leave you to ponder that one.
Not rationalising who you need and why
You don’t want your board to become unwieldy. Onboarding the experience and skills you need might mean that your board has to expand out for a little while so that knowledge can transfer. But once that has happened, you might let one or two of those people go if they are no longer required.
While your board needs to be broad, it doesn’t need to be big. If BHP doesn’t need 15 board members, then a smaller mining company certainly doesn’t.
Getting your board composition right
Getting your board composition right can, quite literally, save you millions/billions. If you want to chat about your board composition or your next board appointment, don’t hesitate to get in touch.