1. Introduction

Corporate boards play a critical role in driving strategy, ensuring strong systems of internal financial control, and managing risks across a company. However, many boards operate with outdated governance structures that fail to address evolving business challenges. One of the biggest culprits? A misalignment between board skills and the company’s operational needs.

This issue is particularly pronounced in organisations that undergo rapid change, face financial distress, or enter new industries where existing board expertise may no longer be relevant. Without regular board education, restructuring cycles, and shareholder engagement, boards risk becoming passive oversight bodies rather than active strategic drivers.

This article explores the hidden costs of an ill-fitting board, examining how outdated board structures create governance risks, why alignment between board expertise and organisational needs is critical, and how companies can implement strategies to build resilient, high-performing boards that evolve alongside their business challenges.

2. Case Study: Cbus Super – The Risks of a Static Board Structure

In 2024, Cbus Super (“Cbus”), an Australian pension fund with over $100 billion in assets, was the subject of a Deloitte investigation commissioned by the Australian Prudential Regulation Authority; based on concerns about whether board members met fit and proper requirements, and whether certain expenditures aligned with fiduciary duties.  

Cbus is governed by equal employer and employee representation. The board is comprised of 12 non-executive directors, who are nominated by various employer and employee unions and 2 independent directors. Unions mostly employ labour law and industrial relations specialists; and therefore, the majority of board members nominated by the unions possessed such skills – which is unrelated to management of billions in pension capital. While this governance model was effective in its early days, ensuring all stakeholders are represented, the complexity of financial fund management outgrew the expertise of its board members, leading to regulatory concerns.

The Deloitte investigation concluded that Cbus board members lacked deep financial expertise, despite managing billions in funds, and that independent financial professionals would need to be involved for effective governance in the future. The investigation also criticised the fact that there was no robust process to reject unqualified board nominees that were presented by the employee and employer associations or unions.

The above case study highlights how static board compositions create governance risks when business complexity outpaces board expertise, and how even large institutions can suffer from ill-fitting boards when heavy reliance is placed on legacy appointment processes.

1. Board Composition, Recruitment and Monitoring

A first step to ensuring appropriate board composition is the use of a board skills matrix during board recruitment and assessment. A board skills matrix is a structured framework that maps the capabilities of existing board members against the strategic needs of the business to ensure that the board consistently possesses the skills to meet such needs. Below is an example:

Principle 7 of King Code IV emphasises the need for a balance of skills, diversity and independence on  boards. Best practice for ensuring proper board composition:

• Ensure all board appointments are linked to a specific strategic need, rather than being based on historical precedent.
• Update the board skills matrix for submission at the annual general meeting of shareholders and adjust composition to address business pain points in real-time.
• Use independent board evaluations to assess whether directors actively contribute to solving business challenges.

2. Board Resilience, Training and Preparedness

Even when a board has the right people, ongoing education is necessary to keep members informed of emerging challenges and industry changes. Best practices for board education include:

• Mandatory annual training sessions covering financial literacy, regulatory changes, and sector-specific developments.
• External experts delivering board education modules to close knowledge gaps or enhance board preparedness for crisis management.
• Peer review processes or self-assessments where board members evaluate each other’s contributions and recommend skill improvements.

Principle 9 of Kind Code IV emphasises the need for a board to evaluate its own performance to ensure performance. The above tools allow the board to close any skill gaps identified. However, if the skills gap is too large or poor performance persists, a board restructuring may be required.

3. Board Restructuring: Triggers and Risk Management  

When performance lags for two consecutive quarters, boards should play an active role in problem solving alongside the company management. However, when performance lags for two consecutive financial years, shareholders should play an active role in board composition. The following events are triggers for shareholder-led board restructuring:

1. Revenue Decline or Underperformance – If a company fails to meet key financial targets for two years.
2. Regulatory Breaches or Legal Issues – if governance failures result in legal or regulatory penalties.
3. Lack of Strategic Direction – If a business faces digital disruption, ESG pressures, or industry shifts but the board lacks a response strategy.

Principle 4 of King Code IV emphasises the fact that a board should appreciate the core business of a company and manages the risks associated with changing business models or new strategies. The above triggers suggest that a board has not adapted to the company’s evolving needs and that long-standing directors, who were once valuable, may have become less impactful as the business grows or pivots.

The key risk to mitigate when implementing a board restructuring is the loss of institutional memory. Staggered term limits, clear exit processes and transition obligations outlined in board charters and appointment letters are tools that can preserve governance stability during turnovers.

4. Conclusion

An effective board is not static—it is dynamic, informed, and continuously refreshed to align with the business’s needs. Companies should use a board skills matrix as a recruitment tool from the outset and continuously monitor it. Boards can remain adaptable through annual training. Additionally, shareholder-led board restructuring should be triggered when persistent financial underperformance, regulatory challenges, or strategic stagnation arise.

Ultimately, a well-composed board is an organisation’s best defence against crisis and its most powerful driver of success. By aligning board strategy with business needs, companies can safeguard governance integrity, enhance resilience, and secure long-term growth.

By Zach Kauraisa
Head of Advisory
Eos Capital