High Performance Boards, 2nd Edition

CHAPTER 8Four Areas of Board Failure

Boards are not infallible: they can fail the organisation that they are in charge of protecting and helping to thrive. My teams and I estimate that 90 to 95% of organisational failures due to board work occur in the following four areas:

1. identifying, assessing and managing risks;
2. strategy;
3. non-executive to executive relations and especially CEO and team selection/support; and
4. integrity.

Board leadership in these areas is particularly important, and failures typically lead to terrible organisational damage. Boards therefore need to be particularly alert to their governance abilities in these domains. The following high-profile examples illustrate the four areas of failure.

A failure to adequately assess and manage risks: In 2008, global financial services giant UBS was the Swiss bank hit hardest by the sub-prime crisis. Due to its risk exposure, the bank wrote down around US$40 billion. The UBS board – which was ultimately responsible – was one of the highest paid in the world and included some of the most influential corporate leaders. Yet it was largely unaware of the risks and unable to deal with them, and its chair, Marcel Ospel, was removed. For example, the board did not have any knowledge of UBS's exposure to the responsible instruments (concentration metrics on the derivatives of choice at the time, so-called collateralised debt obligations or CDOs), despite their contributing 40% of the bank's pre-crisis profits. UBS had a better ...