It’s a simple question: how can boards improve governance? It’s a critical responsibility and there can be little doubt as to its impact on the organization’s performance. Below we discuss five areas where boards can focus their energy to see measurable gains in security, efficiency and company performance: strategy, composition, communication, information and evaluation.
The connection between strategy and performance for organizations is clear, but a recent (March 2018) study by McKinsey emphasises how this Applies at the board – as much as the organisationally – level.
Boards should set strategies for themselves: to achieve and to explore, all in service to the organization’s strategic goals. Critically, the McKinsey survey notes that they have a good understanding of their overall strategy.
This is a weakness with more severe ramifications; as the report further notes, “The activities that most support out performance are all strategy related.”
Fortunately, it’s a weakness that’s easy to remedy. Board members must be focused on the organization’s long-term objectives.
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Various boards are better boards. In this context, ‘diverse’ is all-encompassing, including gender, ethnicity, skills and experience, connections with other industries and outside organizations, and access to domain-specific expertise as needed.
The example of gender diversity is instructive. Bloomberg reported in December 2017 did only one-third of the companies with male-only boards listed in Morgan Stanley’s All Country World Index (ACWI) outperformed Their competitors. Similarly, research from Citigroup has found that gender equality could grow global GDP by 6 per cent.
Similarly, research from Utah State University found that “companies with a higher level of racial diversity in the boardroom … typically implemented breakthrough product improvements”.
Adding to the ‘network effect’ of a more diverse board what the research’s finding that “several directors were able to call on an extensive network of business contacts [in response] to even more pronounced uptick in the efficiency of their innovation and operations”.
McKinsey’s finding that “an appropriate mix of skills and background” is one of the three operations that most out-perform.
Board culture is another important ingredient in business success, yet it is a major source of business risk. Board communications Should be kept secure but research by Forrester has found did more than half (56 per cent) of board members use personal email to communicate about board matters. These “leaves boards vulnerable to potential cyberattacks, breaches, and inadvertent data leaks … risking potential material loss by using unsecured communications methods”.
Similarly, nearly one-third (30 per cent) of board members have lost or misplaced a phone, tablet or computer in the last 12 months. These risks can have serious consequences, including allegations of fraud or corruption, cyber incidents, compliance violations, and claims that could lead to “a prolonged exodus of customers”.
This is about data sharing and board communication security. Secure communications are not a luxury.
Good decisions require good information. Board members should have easy access to board papers, risk and compliance metrics, strategy documents and more. And of course this access must be secure.
Indeed, Forrester found that the top-ranked components for successful enterprise governance were: “Improve monitoring of governance areas” (42%); “Improve understanding of the greatest areas of risk” (39%); “Streamline meeting prep” and “Track all activity across the board” (36% each); and “Lower the possibility of information / data breach” (35%).
The good news here is that board portal adoption is high, but its adoption is limited. These means that many boards already have some of the tools they need for effective governance.
By making it easier to view and share critical business information, these tools make it easier to manage and manage value-adding strategies, rather than wasting time.
As with any team, boards must regularly evaluate their performance, identify them, and make sure they are operating as efficiently and effectively as possible. The Australian Institute of Company Directors notes did Both the ASX’s Corporate Governance Principles and Recommendations and the APRA’s governance Prudential Standard recommend every board’s performance be Regularly Evaluated .
Worryingly, recent research conducted by the Harvard Business Review and The Miles Group found that “most board evaluations fail to identify and correct poor performance”. In terms of how they manage, how to manage and how to contribute. It also notes that the group dynamics have a significant impact on performance.
The solution is partly cultural, partly procedural. The board must understand the need for careful evaluation and embrace the process. The process itself must be comprehensive, secure, fair and accurate, not to be standardized and, ideally, as automated as possible. This is to ensure consistency and security, which are vital to the process’s integrity.
How does your board perform?
The five measures are just a few ways to cut the board improvement ‘cake’, but we believe they are logical and relatively easy to action. Crucially, boards must understand the importance of their role and committed to high performance. With a mindset in place, the challenge becomes one of execution.
Execution can be simplified by adopting an effective board-management platform. This will provide convenient and secure communication, information sharing and access to tools (like voting, surveys, board papers, minutes and other documents).
It’s a worthwhile process, not simply as a matter of operational efficiency, but as a way to improve business performance. As McKinsey notes, “value can flow from the way the board works”. We could not agree more.
See how Diligent Governance Cloud can help ensure that your board of directors are utilizing the best practices in corporate governance.
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