Boards of directors must have expertise and provide oversight over an ever-expanding array of risks and topics (including sustainability, human capital, cybersecurity, AI, and who knows what’s next. Skills matrices have for many years been used for strategic board refreshment purposes. More recently, boards of directors are being included in proxies and elsewhere, to instill confidence in investors and others that the board has the requisite skills to effectively provide oversight of this expanding array of challenges.
Corporate boards thrive when board members contribute different strengths, backgrounds and areas of expertise. One way to assess the unique skills of board members is with a board skills matrix. Learn why the board skills matrix has become popular among corporate boards and its usefulness for the proxy statements that public companies are required to create.
What Is a Board Skills Matrix?
A skills matrix for a board of directors is a tool that can be used to visualize the different experience and skills current and prospective board members can contribute. By distilling the qualifications of different board members into a visual reference tool, the skills matrix helps board or nominating committee chairs evaluate the different candidates.
From there, they can then use the skills matrix to select the candidates that fill gaps or augment the board’s makeup.
Skills matrices can also be used to support environmental, social and governance (ESG) issues. For example, many investors, proxy advisors, exchanges and others board diversity expectations. The skills matrix can support these diversity expectations, and related commitments by companies, by providing at-a-glance visual information about the makeup, skills and diversity of the board and any prospective candidates.
Key Components of a Board Skills Matrix
Now that you understand what a skills matrix is, let's examine how to develop one. What considerations go into the development of board skills matrix? Is there a board skills matrix template you can copy or modify?
Generally, a board skills matrix includes these components:
- Core Competencies: From financial expertise to industry-specific knowledge, core competencies reflect the core desired traits or knowledge that board members possess.
- Emerging Competencies: These include familiarity or experience with climate and sustainability issues, human capital management, cybersecurity, artificial intelligence and more.
- Experience and Background: Candidates come from various backgrounds and possess varied levels of personal and professional experience that qualify them for the role. This component helps you compare candidates' fitness based on their education and work experience.
- Diversity Metrics: Gender, race and ethnicity are a few of the diversity metrics to measure and assess.
- Soft Skills: Candidates hold different soft skills, such as communication, creative thinking, flexibility or enthusiasm for the role or mission. Identifying and evaluating them on soft skills is key for building a well-rounded board.
- Committee Memberships: Board members may be tapped to serve on different committees based on their areas of expertise. Thus, it helps to keep track of potential committee assignments.
Steps to Create a Board Skills Matrix
The categories above represent skills commonly included in a board member skills matrix. However, they might not be germane to your organization.
Click here to view DFIN’s Effective Guide to Proxies, 12th edition for a range of formats and competencies.
Use the categories listed above as jumping off points to consider what skills and experience are needed on your board, how to identify them and how to measure them.
The following workflow can help you think through this process for your organization.
Benchmark your planned disclosures against those of peers/competitor companies. Also review how your directors are discussed in the matrices, bios and elsewhere in proxies of other companies on whose boards they serve.
Many clients report expanding their annual Director & Officer (“D&O”) questionnaire each year, asking questions about emerging topics to see what additional experiences they can surface in this fashion.
- Step 1: Identify Needed Skills: The skills that are necessary to serve on a board are intertwined with the company's mission, goals and niche. Look at your company's mission and values. Then, brainstorm a list of skills that are in alignment with the company's mission, values and objectives.
- Step 2: Assess Current Board Members: New board members should complement existing board members. Thus, it helps to think about the skills that current board members bring to the table, as well as skill sets that may be lacking on the current board. Depending on how well you know the individuals currently on the board, you may evaluate existing board members or provide members with a self-evaluation that they can complete.
- Step 3: Visualize the Data: Once you understand the skills and experience possessed by the current board and the desired skills and experience you are seeking in new members, it's time to create your visual tool. Select a table or chart layout, then populate the fields with the skills and competencies you are selecting for.
- Step 4: Update Regularly: A board skills assessment matrix is intended to be a living aid. Periodically review and update the skills matrix, so it is an accurate reflection of the board skills or current needs and how it informs ongoing board refreshment.
Benefits of Including a Board Skills Matrix in Proxy Statements
Thus far, we've examined how to use the board of directors skills matrix internally. However, the matrix can also be used within a proxy statement, providing shareholders with an easy-to-understand visual aid to the board. There are many benefits to including the matrix in a proxy statement.
Somewhere in the above, be clear that you would not expose gaps in board skills to the public, until you have filled those gaps yourself.
It provides shareholders with a clear view of who is involved with the board and what their strengths are. This increases transparency and trust.
As discussed, matrix statements can be used to demonstrate a commitment to diversity and inclusion. When board reporting includes diversity information, shareholders can see how the company is honoring any ESG commitments it has made toward corporate board diversity.
Here, it’s important to highlight not just the diversity of new directors, but also the critical new skills they bring to the board.
From an investor relations perspective, remember that investors value governance. They want to know that the board includes experienced and knowledgeable people who can guide the company forward. By breaking down the skills and experience in a visual reference tool, the board matrix can give investors confidence and peace of mind in the choices leadership has made.
The board matrix can play a role in the shareholder voting process. A matrix tool that outlines board members' qualifications and corporate governance best practices can be used as a guide when voting on important issues.
The board skills matrix is an important tool internally and externally. A thoughtful matrix improves the effectiveness of boards and enhances transparency and confidence, especially when paired with the proxy guide.
DFIN offers comprehensive financial reporting and proxy statement solutions. For more guidance on including a board skills matrix within your proxy statement, reach out to our experts today.
