Why Capabilities Beat Skills in Building a High-Performing Board

By Darren Rawson

Darren Rawson is the chair of five private companies including AltaML and Chandos Construction. He’s a former CEO of three different private companies and has done business internationally for over 25 years in numerous industry sectors.

A previous article, Treat Your Board as a Design Problem, introduced the perspective of looking at mindsets and capabilities to design a high-performing board rather than just skills.

What do we mean by capabilities?

Capabilities represent a director’s underlying ability to apply skills in dynamic, complex, and relational contexts. They are a composite of not only technical skills, but also lived experiences. 

Focusing on capabilities helps distinguish a high-performing board from a technically competent one.

Capabilities are about how directors think, behave, and collaborate. They include systems thinking, judgment under uncertainty, adaptability, and the ability to engage in constructive conflict. These qualities, developed through lived experiences, allows directors to translate their knowledge into wise decisions, especially when information is incomplete or when the environment changes rapidly.

A capability lens also fosters a more balanced and future-oriented board composition. Rather than filling seats based solely on current technical gaps, boards designed around capabilities are more readily able to assess strategic possibilities and navigate strategic risks.

Putting Into Practice

The first step in designing a board is to start with two critical inputs:

1. Intentions of the Shareholders, Members or Stakeholders. What do the shareholders (corporation), members (not-for-profit) or stakeholders (government or other) hope to achieve? What is their risk appetite, plans for exit (if any), and desired outcomes (expectations for financial return and/or impact)?
2. Strategy. What is the winning strategy for the organization to achieve its mission and goals?

Once these are clear, critically ask: What capabilities (skills and experiences) do we need in the board to help the organization achieve its winning strategy and its  intentions?

To do a great job, we recommend the following best practices:

1. Start with a superset of capabilities. Dream big and imagine all the perspectives that would add value in the boardroom.
2. Less is More. This is the toughest step. Pare the superset of capabilities down to the critical few. We recommend you limit the list of capabilities to 3 to 5 Core capabilities and 3 to 5 Desirable capabilities. Larger organizations and boards would likely be on the higher end of this range, while smaller organizations and boards would be on the lower end. However, design is a constraint driven exercise. Rather than making an exhaustive list, there is immense power in treating board seats as a scarce resource and focusing on the critical capabilities that will make a significant impact.
3. Add Precise Criteria. This step is usually done poorly. With a focus on having the best possible board, draft extremely difficult and tight criteria that clearly outlines what would be ideal. The objective is to identify potential unicorns. There are so many individuals that can make a good director. You don’t want a good director, you want an amazing director. Be as precise and focused as you can. You can always loosen the criteria later.
4. Keep the Scoring Simple. Don’t try to overcomplicate the ranking system. We recommend a simple 2, 1, 0 ranking with clear criteria for what would qualify as a 2 (high), 1 (medium) or 0 (low). Using colour helps create a form of heat map to give a visual perspective when directors or director candidates are assessed against the criteria. 

Examples of Capabilities

Skills matrices often start with skills like finance, law, or engineering. While these may be valuable perspectives, they tend to be too generic. 

For example, having a lawyer on the board may be required, be as explicit about what type of lawyer with what type of experience would make a difference. Do you need an expert in corporate law, litigation, labour law, real estate, wills and estates, family law, or other? This decision should be clear based on the strategy and the intentions of the stakeholders.

For finance, would you benefit more with an audit partner in a public practice, or an expert in tax, or an experienced chief financial officer from a private business? All are valid but also extremely different.

If your business was a private company with a high-growth strategy focused on international expansion and acquisition, eventually leading to an exit, you might draft the criteria like the following:

“A former VP Finance or CFO of a private company with over $250 million in revenue having managed operations on more than two continents and in more than two currencies, having successfully completed and integrated at least three acquisitions, and having led through at least one successful exit event.”

While this example may be extreme and it may be hard to find the candidate, it is better to start with really tough criteria and look for the ideal candidate rather than settling.

A sample capabilities matrix might look like the following:

In short, skills answer the question, “What can this person do?” Capabilities answers the question, “How will this person think, lead, and contribute when it matters most?” 

Boards built on capabilities, not just credentials, defined with intentionality will be better equipped to deal with complexity, navigate obstacles, steward culture, and create enduring organizational value through strategy and execution.

Conclusion

Getting the right board is critically important to a high-performing board and organization. Designing the board with intentionality, using a tool like the mindsets & capabilities matrix, can be invaluable in getting the right board.

The board design should also evolve with the organization. The right board design for today may not be the right board design two years from now.  It is useful to regularly have the discussion to determine the capabilities of the next director to be invited to the board and the ideal board of the future.

If you are going to have an active board, have an amazing board, and approach it like a design challenge.