By James Beck
‘It’s not what you know, but who you know’. While this maxim is not entirely accurate for directors – skills, knowledge and experience are also critical for director success – there is a grain of truth to it. For example, boards often fill vacant positions through the existing board members’ networks and some directors are appointed because their business or government contacts are vital to the organisation.
All organisations, whatever the size or nature of their business, need to attract outside resources to achieve organisational goals and networking is an important way of accessing those resources. Resource requirements vary considerably from company to company but can usually be categorised as financial or information resources. Financial resources may include such things the ability to attract donors or sponsors. Examples of information resources are contacts who know about political policy and people with access to competitor/industry/market data or experienced professional advisers. Using their professional expertise, directors can also be a valuable resource for senior management as mentors and advisors where they can help to fill gaps in management’s knowledge. Directors also play an important role in promoting the company and its interests and enhancing its reputation with a wide variety of stakeholders. A wise board is responsive to what the outside world wants to know about the organisation and its activities.
As such, the role of directors in networking has been the subject of numerous academic papers and has even spawned one of the most influential theories in corporate governance and strategic management – resource dependence theory (e.g. Pfeffer & Salancik, 1978; Hillman, Withers & Collins, 2009). However, from the over 500 board evaluations Effective Governance has conducted over the past decade, it is clear that many directors have little or no understanding of the networking role or how it can benefit the organisation on whose boards they sit.
A common statement in response to questions about the board’s networking role is that ‘the chair does a bit, but the rest of the board doesn’t.’ This can be put down to another often-heard comment that ‘there is a lack of guidance about what it means.’ Put simply, directors who could use their contacts, knowledge and expertise are not taking part in networking activities on behalf of the organisation, because they are not told it is needed. Another problem directors report is that they ‘don’t have any useful contacts.’ It should be noted that not all directors need to have relevant contacts, their skills in other areas will make them valuable board members. However, if the organisation does need access to resources that can be reached through director networks, then the board should consider recruiting suitably connected board members. For example, a not for profit organisation looking to grow its funding could look for a director with connections to government or a large company which makes philanthropic grants.
However, since the actual resource needs of individual organisations vary and depend on a variety of factors such as the company’s size, history, industry and strategy, there is no fixed set of networking actions for every board to pursue. Instead, different roles will be required for different boards. For example, a small independent school in a regional town will have very different resource requirements to a well-established grammar school in a capital city.
The following steps will help the board discover gaps in the board’s composition and improve its networking capabilities:
- In line with the organisation’s strategic direction, define the purpose for networking, e.g.
- Access to financial resources;
- Access to knowledge and information;
- Access to key stakeholders;
- Promoting the reputation of the organisation;
- Determine the ‘social capital’ (i.e. the social ties that directors bring to an organisation) required within the board to meet networking objectives
- Network of contacts available to individual board members;
- Characteristics and background of individual board members.
Competent boards link into networks of people with shared interests and complementary skills and resources to those of their own organisations. They add value to their organisations by increasing access to resources and information and by building the profile of their companies. They share the knowledge they have gained with their employees and work in teams to build competitive advantage for the companies they represent. However, to be effective, networking takes time and it is a two-way street; directors want to solicit their networks to get the information or and assistance they need, but they will also need to be a source of information and other resources back to their own networks.
In conclusion, boards have a significant role to play in providing advice to management and developing a series of contacts/networks with those outside the organisations that will further the organisation’s strategic objectives. For this reason, it is advisable for boards not only to establish clear policies in this regard and state expectations of directors explicitly in the director’s letter of appointment and in the board charter, but having reviewed the organisation’s strategic direction (hopefully at least annually), to then spend time discussing how networking can assist to achieve the strategy.
Hillman, A.J., Withers, M.C., & Collins, B.J., ‘Resource Dependence Theory: A Review’, Journal of Management, vol. 35, no. 6, 2009, 1404-27.
Pfeffer, J. & Salancik, G.R., The External Control of Organizations: A Resource Dependence Perspective, Harper & Row, New York, 1978.