Patrick is an experienced Chair and serial social entrepreneur who has extensive experience of working with boards in Europe, Asia and North America. He is currently Chairman of board consultancy Boardelta, the charities The EY Foundation and ESSA- Education Sub Saharan Africa and a Trustee of the Chartered Management Institute. Patrick is also member of the advisory boards of Bridges Social Entrepreneurs Fund and the FT NED club, and a former chairman of smart materials business D3O.
His executive experience includes 26 years in a variety of investment and management roles with 3i Group plc where, until 2012, he was Communications Director, a member of its Operating committee and Chairman of its Operational Risk forum.
Early on in his career at 3i he built a resource of over 600 experienced directors who were appointed to over 2,000 boards for 3i in 14 countries across Europe, Asia and North America. The programme he established became widely recognised as a model of adding value and a leader in best practice. As a member of the Higgs review Patrick has also played a role in shaping governance policy for UK listed companies.
The author of three successful books on the subject, he has helped to establish many successful courses on board skills over the last twenty years and helped Chairman across a wide range of sectors to transform the effectiveness of their boards. Today he provides this service through Boardelta.
Patrick has a passion for education and was a member of the General Council of the University of Warwick from 2006 to 2015. He is a Visiting Professor at Cranfield School of Management, an Associate Fellow at Warwick Business School and former member of Business in the Community’s education leadership group.
He also has extensive experience of developing social enterprises using venture philanthropy techniques, most notably with Leap Confronting Conflict where he is Patron and was Chairman, from 2006 to 2015, with ESSA, the EY Foundation and with Warwick in Africa which he founded in 2006. Warwick in Africa has now benefitted over 600,000 young Africans with transformed Maths and English teaching.
About the Episode (May 2021)
Chair of EY Foundation, Patrick Dunne, joins Alberto Lidji to discuss the dynamics of corporate and governance boards. Great insight from Patrick’s book, “Boards”, and nearly 30-years experience at 3i
If you have to work with boards this episode is for you. We tackle highly topical questions:
What are some of the main challenges with boards?…
What’s the relationship between the chief executive and the board?….
Is there much of a difference between board members within a for-profit context vs a nonprofit context?…
What about recruiting new board members?…
This is a transcript of the conversation between Alberto Lidji, host of The Do One Better! Podcast, and Patrick Dunne.
Alberto Lidji: Patrick, a big heartfelt welcome to our show today.
Patrick Dunne: Thanks, Alberto. It's great to see how well the podcast is doing and some of the people that you've had on, I've learned a huge amount from, uh, from them. So, it's really a great pleasure to take part.
Alberto Lidji: Excellent. Well, it's good to have you back. Tell us a little bit about Boards, the book, and then let's get into some of the challenges that we face with boards in different and different ways.
Patrick Dunne: Yeah, so yeah, why did I write the book? Well, I thought there was a gap in the market and I felt, yeah, most of us learned the art of being on a board by being on a board.
And historically there was very little development. There's much more available now, but what I thought was missing was a sort of basic companion, a practical companion, not the theory necessarily, but you know, how do you do this stuff? How do you build a board? How do you make it effective?
How does that work with the executive? And so I came up with the idea of doing something, which was really just a practical companion for people. And it's kind of split into four sections, so purpose people and process. And then half of the book are real, uh, real examples, real case studies, which you can work through. And a number of those are in the social sector.
Alberto Lidji: What are some of the main challenges with boards? Is there any top line summary that you could give us? Look, if you had to remember... be aware of... keep an eye of blind spots, these are the two or three things when it comes to boards, you really got to watch out for?
Patrick Dunne: I mean, one of the reasons I structured the book around purpose people and process, was I think... There's often a confusion about what the board is for. There's often a confusion between the role of the board and the role of the executive. So I think that's a sort of starting point. Very important and very obvious is you've got to have the right people working together in the right way. So you gotta, you know, you've got to compose the board with that in mind and good, simple process. So not overprocess, but good, simple, effective process can really up the effectiveness of a board. So I think those are the three things I would have , in my mind, purpose people and process.
Alberto Lidji: And that relationship between the chief executive and the board... and let me throw one additional component there, which would be the senior management team. One of the things I hear quite a bit from board members, from CEOs and from senior managers is that communication channel between those senior management team members and board members directly, which often might bypass the CEO.
And some CEOs feel very protective about those relationships. But on the other side, some of them are quite comfortable with them feeling that they are empowering their senior managers to communicate directly with board members. Tell me a little bit about that dynamic and what's appropriate and what you see.
Patrick Dunne: Yeah. So , as you probably know, Alberto I'm a mathematician by background. And I have a great love of the work of John Venn, the Venn diagram, being the sort of most well known of his things. But I imagined this, this relationship between the board and the exec and the chair and the chief exec, uh, being a bit like different stages of a Venn diagram.
So if you can imagine the two circles, not interlocking at all, they live in a parallel universe. They don't really communicate effectively. That's not very good. If you can imagine the other end of the spectrum where the two circles that are almost completely overlapping. You know, the chair is trying to do the CEO's job.
That's very counterproductive as well, but that state in the middle where you've got, you know, clear roles for each of the board and exec the chair or the CEO, and you've got a decent intersection, that's the sort of place to get yourself in. How'd you get there? Well, I mean, I guess the first thing is to talk and to be clear and to agree what the roles are.
I think a problem for many boards is. Everyone assumes they know what the board is for. They know what the exec are doing . So, I mean, in my simplistic world, I kind of split what the board does into making sure there's the right vision and strategy, the right resources and the right governance. And for the exec, it's all about developing and delivering the business plan with input and support from others and maintaining financial and operational integrity.
And I think if you're having those conversations around, what do you do, whether we do then the bit in the middle becomes clear. One practical way that many boards use now to get that bit in the middle of clear. And of course, during a pandemic that's grown, that intersection... is basically to say, you know, what are the big things we need to get right this year?
What are the big decisions we need to take? How are we going to make those decisions? When are we going to make those decisions? Who's going to get involved in them. And I think through that dialogue, you will avoid this... You know, the board and the execs only interactions being in a board meeting, you know, it's, it goes beyond that.
And we've certainly seen that in COVID where the level of both oversight and support boards have needed to, to provide has been increased. It will be interesting to see where that intersection settles back down, uh, after a while I think it already is a bit , but I think good communication, trust, respect... and actually non-execs , trustees in a charity context, delivering value increases the respect they're held with by the management, which increases their influence when they need to influence the management. So there's this sort of virtuous circle in that.
Alberto Lidji: Within a nonprofit board and for our listeners, just to clarify , in the UK, for instance, board members in a charity would be called trustees, not necessarily directors where... is there much of a difference between board members within a for-profit context versus a nonprofit context? And, and let's look at the value they actually add.
Patrick Dunne: Well, I mean, I think context always influences how people behave, what sort of people thrive and so on. Yeah. Even within the corporate sector, there's a big difference between being a board member in a big listed FTSE 100 company likes 3i. Uh, or a small fledgling startup, you know, different things are required of the board members.
The fundamental stay the same but you know, they need to have good judgment. Um, they've got to have good interpersonal skills to bring those judgments to bear. And most of all, I think they need really good antennae so they can figure out what's going on within and outside of the company.
So the context does influence things. I think the, um, the days of, you know, people joining a board to help at the end of their career and, uh, just, just turning up and giving some, you know, good wise advice every now and then are gone, you know, the social sector is a serious sector. And if you just make the mental sort of transformation from profit to impact, you know, whereas in a business, you know... in the business, I was in for a long time, you know, it's all about value creation plans.
I think I just made the switch to it's all about impact creation plans. Um, and if you think in that way, you know, you've got to have a vision, you've got to have a strategy. You've got to have an operating model. You've got to have a business model you know.... All of that. It can just be... It's like as a transformation, really just with different language, but the principles are pretty much the same.
Alberto Lidji: Very interesting. Now in terms of how we define profit, that's fairly straightforward. And the accounting rules behind that again, I think pretty clear cut. However, with regards to impact, and you touched on it in terms of impact creation, what you qualify as impact my differ than what I qualify as impact.
And then if we take that one step farther and we looking at the operational landscape for a nonprofit. Where there isn't a profit maximization motive, where incentives are not the same as in the private sector where market pressures are not exactly the same. They might be distorted. You might have, um, non-profits who are catering to a market that's oversupplied. And there isn't any consolidation in that industry because there are no activist shareholders or hostile takeover. Tell me a little bit about the board and how they might look at strategy. In a context where the objectives may not be as clear cut. They might be opaque. They might be a bit fuzzy.
Patrick Dunne: Yeah. So, and of course, impact is easier to measure for some sorts of social... uh... impact, and then others. So, uh, at LEAP um, where I was chair for many years, and now patron, you know, we work with young offenders. We work with young people who are finding it hard to manage conflict. So how do you measure the impact for that?
You know, and sometimes some of these things can take 10 years before you really know you've had real impact, but you can measure weigh points. So, if you're working with young prisoners, you can, you know, you can measure the change in behavior. You can measure the fact that they're now going on employability programs they weren't, before. They don't re-offend. So there are components, elements of impact, and you can have way points along, along the way, whether your impact is going to be relatively quick, or really slow... the hard bit for most charities is attribution.
You know, what of that... so that person has changed for example, but how much of that is really due to you, particularly when there are multiple, uh, types of supports around the young person? I think for the board, I think the area where there's probably a great deal of opportunity in the next phase, if you like of development is around bangs per buck. So when we founded Warick in Africa ... we teach, um, children in slums and rural areas of poverty in Africa and we, and we train teachers. And so I was really interested in, you know, what's it cost us to teach a child for a month?
You know, as we started and we worked out that, you know, in the, in the first month we... we're now 15 years old, but the first month that cost was around £44 per child per month, uh, now, and actually we're having... better impact per child. But now that cost is below £10 . So we can help, you know, four and a half times the number of children that we helped in... when we first started and we should do, because we should know more what we're doing now, uh, we're a bigger scale, uh, and so on, but I, I think, sometimes we don't think about, um , our social activity in that way. And then when you've got different programs, you can look and see, well, you know, of those things that we do, which is the ones where we seem to be making the biggest difference and the economics are better as well.
It's not always the case that, you know, the things that produce the lowest cost are the best things to do. We know that from our consumer world, um, you know, and sometimes you have to fund things that no one will fund at that point, but you just believe they're right. And you've got to wait for the evidence to come through to prove it, but at least you got to try to get that evidence.
I think, um, boards really need to know what impact they're trying to create. What impact are they creating? And, and there should be a restless gene in the boards. That's about, you know, how can we create even more impact per hour we spend or per dollar we spend or whatever it is. I think if you have that restlessness around improving your impact, then that's very healthy.
Alberto Lidji: Now that all seems pretty sensible. You're obviously an experienced board member and you are a mathematician and you have 30 years private equity experience. So quantifying a challenge and trying to allocate a value to a solution might be instinctive to you. Other board members, perhaps don't have your background, perhaps are not as experienced, question to you is how aligned do you find board members within nonprofits actually being with each other and with the organization. And I ask this because sometimes you find organizations where there's a vision and mission that seem to be rewritten every six months, or there seems to be one mission and vision that's formally published, but if you approach each individual board member, they give you a completely different version of what that is... if they are indeed aware of what the formal version is. So the question then is. How do you see things?
Patrick Dunne: Yeah. So I think the role of the chair is absolutely critical in this and the strength of the relationship that they have with the CEO is a really important aspect of that. And so I think in terms of alignment, I think the way that you add people to the board matters a lot and actually adding people, um, you know, as you go... So I think boards are permanently in transition. That's always my mindset that, you know, I'm always on the lookout for, you know, who might be the next person that might be able to help us get to that, get to that next level.
So you're recruiting board members, you know with a particular end in mind. I think in terms of diversity, I think, um, there are some things that come easier to us and some things that come hard. So some things I find really difficult. And so. I'm always conscious that, uh, you know, in terms of adding people, that they have to be additive to the culture of the board, uh, and additive to the skill set and knowledge of the board, uh, and the sort of perspectives that they might have.
I found it incredibly useful in, uh, in many of the things that I've been involved in to have more young people on the board as well. So, you know, EY foundation, for example, you know, we have a youth advisory board as well, and the chair and the vice-chair of that are on the board. You know at LEAP we have young trustees and so on, and that has a, a kind of really good effect, uh, on, on other people.
The other thing is really given that in, in most of the world, um, you know, social sector board members are not paid. Um, they, you know, you have to understand their motivation. So why are they doing this? Uh, they're doing this because there's a connection to the cause. Are they doing this because it looks good. Are they doing this because of the network that that will bring, because you know, sometimes, you see people on charity modes and their sole aim seems to be, you know, just networking with the people who are also on the board and not actually connected to it. You need to sniff all that out in the recruitment process. And it's quite fascinating in the recruitment processes that I have in the things where I chair, which are mostly involved in the sort of education and disadvantage area I found having young people, uh, beneficiaries, particularly involved in the selection process is a brilliant way of sniffing all that out.
Because if a person can't empathize with that young person... doesn't get those issues... that might be just because they haven't experienced them, but they have the personalities that they will, or it might be just, they're never going to get it. And I found young people can be incredibly perceptive around those issues. I found that quite helpful, but motive pretty important.
Alberto Lidji: Now you're referencing a scenario, recruitment process that seems quite transparent, quite... well inclusive in terms of the different voices that are involved in it. Now that perhaps is your state of affairs, but there are other organizations where they're out on the lookout for a new trustee or a new director and the system and the process could not be more opaque. It sort of begs the question. How on earth is that process happening? There's no way of getting visibility into it. And then you end up with a trustee who may be great or may be otherwise, but that's how a lot of organizations operate. Tell us a little bit about that.
Patrick Dunne: Yeah. So I think there's a natural human tendency to want to sort of go within our orbit if I can put it that way. So, you know, people, we know people like us and there are some great strengths in that, but there's also some big weaknesses in that. And I think there's nothing wrong with putting someone into a process who you know, as long as that's genuine. So, you know, search terms will tell you, there's a lot of people who put people into processes and they're the one that's going to get the job. They're the one that's going to get picked, but they have to be seen to have a process, so they have a process. So if it's not genuine, I think, you know, why waste your time on, on, on search fees?
Why don't you just appoint the person? If you're not... that that would be my view, but I think. It's so important. If you're a chair, you know, to get the right people on the board. I've been incredibly lucky. So for example, at ESSA we... well, a year or more ago we appointed three fantastic trustees... all happened to be women... and... actually we had to appoint them, um, without meeting them. So we used a search firm to do this, but we, you know, we had the zoom type meetings, which was, felt a bit strange. But actually they've all turned out to be, to be really good. They're all very different characters. They have very different sort of experiences and backgrounds. But they all absolutely got what we were about very quickly. And all had something in a different way that they could clearly demonstrably bring value to what we were doing. It was a decent process. You know, we had a lot of people interested in being board members. Again, we had young people involved in the process. And again, that that worked well for us.
Alberto Lidji: A question that comes up quite a bit... And perhaps it's a sort of... there being a noticeable difference between how things are done in North America versus here in the UK. Um, not always, but it's a question that comes up a lot is about the role of that board member and whether they should themselves be actively supporting the organization in some sort of philanthropic way, or at least opening up their networks to make sure that the right people are introduced to the organization. How important is that? How prevalent is that? Give us a little bit of your insight.
Patrick Dunne: Yeah. So I think one of the... balances are really important word in lots of respects, but in this respect, I think that balance between oversight and support... that balance between objectivity and being a friend is really important. So I think my view is that every board member should be doing all they can to support the growth of the organization. And if that means opening their address, book, making introductions, reinforcing introductions, helping them convert things, then they should be doing that.
However they need to be doing more than that. So fundamentally they need to be making sure they are making sure the organization has got the right strategy. It has got the right resources and it has got the right governance. But on the support side, I think, especially during the last year, you know, all... I mean, I've seen so many fantastic examples of people you know, just doing things they weren't asked to do, but they just introduced, you know, uh, someone who can solve a problem for the organization, someone who might actually be a funder. Most trustees, if you take the UK context or... and then if you take the, the U S context, most board members will be donors as well.
Often in a modest way. What you have to watch is you don't want to not have someone on the board because they haven't got the, the personal wealth that will enable them to do that. So I'm really clear with board members in recruiting that, you know, fantastic if they can. But it's not an expectation.
But it's quite interesting that pretty well all do, even if it's only modest, you know, they're showing some sort of commitment. The trap to fall into is to have that, that very wealthy person who is ... who's a nice donor but they're not necessarily a good board member.
So I think you have to be clear what they are. Are they a donor and a great friend of the organization and you manage them in that way and you support them in that way and they support you. A board member is something different. So I think, you know be clear what is you're recruiting. I I've had approaches... I mean, I used to get a lot when I was at 3i where people would, you know, 'we'd love to have you on the board... And actually that was just because they thought I could give them some money and I had some rich mates. And, you know, there was no real interest in what I might be able to, to do. It was sort of cynical and so that had no interest for me. I was not interested in that. You know, I want to do things where I identify with the cause in a good objective way.
Alberto Lidji: Is that perhaps a nudge towards encouraging non-profits to look both at having a formal board of trustees, board of directors, and then perhaps parallel to that with a different function, a development committee, a fundraising committee, something along those lines that doesn't have a necessarily constitutional, statutory place, but plays a role.
Patrick Dunne: Yeah, that's right. And that's what a lot of social sector organizations do. They have those things. And actually for some people, they don't want to get involved in the governance. They just like giving money, they like raising money and so actually respect that and let them do that. And don't get them all muddled up by making them a trustee and getting involved in things that they don't enjoy.
Alberto Lidji: One question I always have is the power dynamic and the power structure that I see within different organizations. And sometimes you see boards that are very powerful, very united and, perhaps relatively speaking, a weak CEO or executive director. Others... and not that unusual, you see a strong, very strong chief executive and a board that barely knows each other. And consequently, that chief executive wields considerable power and isn't necessarily put in check and balance the way a more. Uh, cohesive board might be inclined to do. Tell us a little bit about that because I always found it very interesting, particularly in a setting that's not for profit where it's not a profit maximizing context. And consequently, there may be some risk aversion as well and different things like that within a management structure.
Patrick Dunne: Yeah. So, I often sort of have a geometric example for this, uh, which is my favorite shape is a triangle. And one of the things that I mentioned when I see a board, if I'm observing a board, when I'm helping them for the first time, for example, I think about what geometric sort of position are they in are they a triangle, where they're all pointing in the same direction and all the arrows are towards one of the corners of the triangle, but there's enough degrees to difference.
So that there's that sort of energy, restlessness that sparks creativity. Or are they just a straight line where they've either got a monarch as a CEO or a chair and you know what everyone else says doesn't really make much difference. It's still going to be that.
The roots to your question is really the chair. If those negative things are happening, then that's the chair's responsibility to sort that out. Now, one of the things in big public companies that you have as a senior independent director, who's that person that you know if the chair isn't performing. Uh, institutions can, you know, let them know that they want, they want something different. They want a different approach. In the social sector, you know, in charities and private sector, there, there often isn't that equivalent senior independent director, that person you can go to. So it's quite good if you have a kind of, even if they're not called it, a sort of senior trustee who supports the chair and actually can have a word with the chair if required to say, look, you know, the management and the board seem to be disconnected. We need to get that connection back. You know, do you want me to help you do that?... that kind of thing, but it doesn't have to be, you know the oldest, most impressive, but someone needs to step up and say, look, this isn't really working as effectively as it could... let's do something about it.
It's interesting. I mean, a number of people use a board review or some sort of catalytic moment like that to get to that solution. You can tell when a CEO... When you get approached and the CEO says, you know, can you...,could use advice about my board or, you know, or a chair or a trustee, and it's not, you know, there's an issue... And it's just about outing it and then dealing with it.
Alberto Lidji: And now we've covered a little bit about the for-profit world and the not-for-profit world, and difference between those two. We need to touch it a little bit on the social enterprise world. Tell us a little bit about that. And I know you're in social entrepreneur yourself.
Patrick Dunne: Yeah. So I mean, many people just describe social enterprises in different ways, but if you look at that, spectrum from pure charity to sort of red meat business. They're kind of in the middle, whether they're a business with a strong social purpose or a charity with a with a business activity... they're in that space.
I think, the key thing here is around back to what we were talking about earlier, really around impact and profit. And if you have as a board, a mindset where you have, maybe you have eight KPIs and four of them are social KPIs and four of them are commercial KPIs... you need the commercial performance to be there to be sustainable.
And if you haven't got the social ones, then you're not a social enterprise. And what's interesting I think COVID has probably accelerated this is, I think there's a societal urge demand, trend, whatever you call it to, to sort of... for businesses to become more social. And actually for charities to become a bit more commercial, so they're more sustainable.
So we're kind of morphing towards the middle. I mean, there's some very, very large social enterprises, ,as you know, I think, again, it's back to clarity, you know, so if we have this activity, what is the point? So at LEAP, for example, we built a very successful training activity, which provides a great source of unrestricted income and a great source of opportunities for the young people that we've trained to manage conflict more effectively to generate income for themselves and to, you know, to be fulfilled and have successful careers. We had a simple matrix, as a board, which was when we were thinking about doing new things, you know, is it on mission? Is it generating money?... and it can be on mission and generating money as that training activity was, we tended not to do things that were just generating money because we were sort of fairly resource constraints, so we focused on the things which made money, but also had some social purpose. So, that was the way that we reconciled. Those two things, but I think there's some great work being done now ... some great research that's been done around these topics.
So it's much more developed now than it was when I was starting out on this stuff... where It was just very crude really. We had, you know, four social KPIs, four commercial KPIs and we had to be delivering on all of them, otherwise, you know, we wouldn't have that viability.
Alberto Lidji: Yeah. What's your key takeaway for our listeners around today's conversation, around today's context?
Patrick Dunne: You know, strip away all the crap that's talked about boards and focus on purpose, people and process, and you'll get there. I think there's a lot of theory, a lot of talk around boards. And, as you said earlier, I mean, getting that relationship with the executive right is really central to success.
Alberto Lidji: Perfect. Thank you so much for joining us today on The Do One Better! Podcast, really it's always such a pleasure.
Patrick Dunne: Absolutely my pleasure to do. Thanks very much, Alberto.
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