Three characteristics of a good company director

24 May 2023
The rise of ESG, public demands for corporate transparency, new regulations and other factors have made sound corporate governance more important than ever for organisations looking to lower risk. Anyone developing a corporate governance strategy must understand the importance of directors, directors’ duties and responsibilities, and what makes a good director.

This article summarises three essential characteristics of a good company director. The observations are based on years of experience providing related information and advice to clients and  address some critical factors at a high level.

A good director should of course possess more than three characteristics. We address some other beneficial traits at the end of the article to help organisations looking to evaluate their existing board members or searching for new directors to enhance their business.

Leadership skills

Above all, a good director must have good leadership skills. As a member of the board of directors, a director helps outline an organisation’s purpose, tenor and strategic direction. They have duties and responsibilities and must manage the company’s operations in a compliant, professional way.

Directors should lead by example and set the tone from the top. They must be able to help manage the business and deal confidently with stakeholders — including shareholders, employees, suppliers and customers — continually balancing their diverse needs.

Effective communication is essential to good leadership. Successful company directors should be able to articulate complex directives and metrics to managers and executives, imparting a shared vision and path to achieving desired outcomes. 

Good leadership also involves empowering others. A director should be willing to step aside after developing and communicating a strategy and allow others (perhaps with more specialist skills) the autonomy to be successful. Adam Nash served as the president and CEO of Wealthfront, a California-based online financial management firm. He believes metrics set by directors are critical to enabling employees to unilaterally make decisions that align with a company’s mission.

“Metrics are actually the way that you can harmonize a large number of people, whether it’s dozens or even thousands,” Nash told the New York Times. “That way, when they’re on their own and making their own decisions, they can be empowered to make those decisions because they know they’re aligned with the rest of the company.”

A good company director also proactively listens to others and fosters open communication among board members and external stakeholders. Besides their regular duties, directors lead in other ways, such as acting as organisational spokespersons, promoting organisational values, searching for potential board members, and concentrating on meeting the demands of stakeholders.

A team-first attitude

A good director must be a team player, which involves leading, empowering, and valuing diversity, equity and inclusion. All board members should be able to work well collectively, efficiently and effectively, as they’ll spend lots of time together and need mutual trust and respect. Remember Helen Keller’s observation: “Alone we can do so little; together we can do so much.”

While different personalities and perspectives strengthen a board, they can also present challenges. Any board will inevitably have some members who are more outgoing and provide their thoughts more readily than others. A good director will recognise this and foster a safe environment, with an atmosphere of goodwill in which all board members feel able to fully participate in developing strategy and running the company. A good director will also recognise that new board members may feel intimidated and need more attention than others to feel part of the team and contribute. 

In short, a good director should promote inclusivity, be able to build consensus, facilitate collective decision-making, and create and foster an environment of respect, trust and teamwork. First and foremost, a good director focusses their professional efforts on improving the company’s culture and bottom line.

Industry expertise

While company directors must demonstrate leadership and teamwork skills, they also need to be experts in their respective industries. A good director should keep abreast of industry trends, market dynamics, new and changing laws and regulations, and their competitors’ practices. This will better equip a director to make informed decisions that stimulate company growth, minimise risks, and capitalise on emerging opportunities.

Writing for the Harvard Law School Forum on Corporate Governance, R. Christopher Small observes, “Of all requisite competencies, industry expertise is perhaps the most important attribute for board members because it equips directors with a deeper understanding of the risks and opportunities in a specific industry and also enhances directors’ knowledge of the regulatory environment and key industry players.” He goes on to cite a study that found many board members lack the requisite industry knowledge to effectively develop strategy.

Additional characteristics of a good company director

We’ve found the above three characteristics to be especially critical when trying to predict the success of a company director. Here are some additional traits to consider, which largely align with a director’s duties and responsibilities.

A commitment to diversity and inclusion

Increasingly, directors recognise the importance of diversity and inclusion in the workplace and the boardroom. Indeed, some jurisdictions and stock exchanges have implemented board diversity requirements. Regardless of compliance obligations, though, a good director understands that a board with a variety of viewpoints typically makes sound, unbiased decisions that tend to improve company performance and boost morale.

Ethical standards

A good corporate director prioritises the company's long-term goals and considers the consequences of their decisions for various stakeholders, including employees, shareholders and customers. They must also consider their industry and the local communities and environments in which they do business. Corporate purpose — with businesses being a force for good — is more important than ever for these stakeholders.

Independence and objectivity

Directors should always make their decisions independently and objectively. They should challenge and question business decisions when necessary and introduce differing perspectives to the boardroom while avoiding conflicts of interest.

Financial and legal understanding

Although it’s not compulsory for directors to have professional qualifications, a good company director should understand both the financial and regulatory background of their business. Directors must have sufficient familiarity with the regulatory framework required to run the business and with the business’ budgets and financial statements and reports. A director should be able to recognise matters that look odd or out of scope and that might present regulatory or budgetary risks. A director with these qualities can lower risk and add significant value to the business.

Different companies, different directors

While we have found that effective company directors share the characteristics we’ve described, it’s important to remember that there’s no one-size-fits-all approach to vetting a board candidate or assessing one’s performance. Each company director must be evaluated differently based on a company's size, corporate culture, countries of operation, strategic goals, industry and other factors.

This is an updated version of a previously published article.