Board Effectiveness and Building High-Performance Boards
Board effectiveness is critical to the success of an organisation, yet many boards struggle to assess board performance.
- Do you know how your Board is performing?
- Is it well-informed, with relevant skills, offering strategic counsel, challenge and incorporating effective board assessment tools; or is it dysfunctional, disengaged and doing the bare minimum?
Recent research from Grant Thornton found that only 60% of companies believed they had adequate board evaluation processes in place to evaluate board performance, with evidence pointing to lingering resistance to evaluation among Board Chairs. With the risks of a poorly performing Board ranging from inefficiency to catastrophe – as evidenced by the Carillion debacle – this is an area that organisations can’t afford to overlook.
As the popular saying goes: “You can’t improve what you don’t measure”, so if you want to ensure that your board is functioning effectively, you need to put board assessment tools in place to monitor activities and highlight areas for action and improvement.
This article will discuss:
- What Boards should be aiming to assess?
- The pros and cons of different board evaluation processes
- The culture that underpins effective board assessment.
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A Board Effectiveness Review
Before beginning the board evaluation process, it’s important to establish the scope of the exercise and to conduct a board effectiveness review. Board duties are multifaceted, so it’s vital to clarify the areas of performance that you can assess and then effectively address.
Questions to be Explored in the Board Assessment Process Could Include:
- Are the board and committee structures appropriate?
- Are the committees led effectively?
- Do we have the right skill set among directors now, and for the future?
- Do we have an effective succession plan in place?
- Does the Chair provide effective leadership and set the right tone and culture?
- Are there sufficient opportunities for feedback and evaluation?
- Do directors have a good understanding of the business, industry and organisational mission?
- Do directors receive sufficient opportunities for training and development?
- Is oversight of compliance and reporting effective, robust and transparent?
Every company is unique, with differing priorities and challenges, so assessment should reflect these and evolve as the business changes. Furthermore, a deep dive into every aspect of Board performance each time you conduct a review may be a case of using a sledgehammer to crack a nut. You might instead decide to set a review cycle that looks at different criteria in turn.
Find out how Diligent’s Board Evaluations tools empowers board assessment processes
Methods of Board Assessments
Once you’ve identified the areas to be evaluated, you must decide on the board assessment tool that best meets your needs. For FTSE 350 companies, the UK Corporate Governance Code requires that there is an externally facilitated board evaluation every three years. Boards outside the FTSE 350 are required to report annually on the process of board evaluation and its outcomes, although external assessment is not mandatory. The choice therefore comes down to board self-assessment through the variety of available tools or engagement with an external consultancy. Each of these has pros and cons.
External Board Evaluation Tools
Engaging an experienced external consultancy gives an independent perspective on board performance. Outside consultants can look at structure, board dynamics and processes with ‘fresh eyes’ and gain insights that might not otherwise be clear. The formality of the process lends it gravitas and ensures engagement by participants. Furthermore, consultant neutrality may encourage greater candour among Board directors when assessing their peers.
On the flip side of this is the greater cost entailed by using a consultancy. Few organisations can justify the expense of frequent external Board reviews, which can also be time-consuming and resource-intensive, as materials must be prepared and interviews scheduled. The formality of the process can have the opposite effect on candour, making directors more guarded about sharing their views. Furthermore, an external process that takes place infrequently offers a point-in-time snapshot of Board performance and this, while valuable, provides limited opportunities for ongoing monitoring.
Board Self-assessment Tools
Board self-assessment tools, from basic off-the-shelf surveys to far more sophisticated cloud-based digital software, are less costly than external assessment. This means that they can be used more frequently and become a regular part of the Board’s “business as usual”. By regularly “taking the temperature” of the Board, its health can be monitored, and any developing problems more quickly identified and addressed. Board evaluation questionnaires can be developed in-house and tuned to reflect changing business priorities, making the assessment process more closely tailored to the organisation.
As with external assessment, the success of self-assessment relies on directors being candid in their feedback. A self-assessment process can feel uncomfortable for some: it is more personal and directors may not be as comfortable ranking their own and their colleagues’ performance. As it’s also less formal than an external process, the Board must make a commitment to self-assessment and not allow it to slip down the priority list. The Chair and CEO need to set the tone by underlining the organisation’s commitment to review and improvement.
With tools such as off-the-shelf surveys requiring manual completion, the administrative burden of self-assessment can fall disproportionately on the shoulders of board support staff. However, the advent of digital board evaluation modules relieves most of this pressure by facilitating easy creation of board evaluation questionnaires. Questions can range from multiple choice and ranking formats that deliver quantitative analysis, to open-ended questions that elicit qualitative insight and opinion from directors.
Online board assessment questionnaires are easily distributed and completion rates can be tracked automatically, with reminders sent to any directors who are dragging their feet. Once responses have been received, analysis is straightforward and report generation is simple. Simplifying board assessment in this way makes it more accessible and suitable for more frequent monitoring.
Promoting a Positive Board Evaluation Culture
Depending on available resources, organisations may decide to adopt a mix of external evaluation and in-house self-assessment, but, whichever strategy you choose, creating a positive culture that views board evaluation as a valuable exercise in improving board performance is essential. This must be led by the Chair and endorsed by the Chief Executive as a strategy for continuous improvement.
Critical to getting director buy-in to evaluation is ensuring that the results are constructively reported to the Board and shared formally with stakeholders. This builds transparency and trust between stakeholders and the Board and generates respect for the exercise; participants know that the outcomes won’t just be locked in a drawer and forgotten about.
Finally, it’s essential that the intelligence gained from Board assessment is translated into actions that are rigorously pursued. Directors will become quickly disillusioned if evaluation is seen to be little more than a box-ticking exercise and they will be less willing to engage in subsequent assessment exercises.
A defining feature of effective boards is that they embrace the opportunity to ask: “How can we do better?” The very process of assessment improves the performance of the Boards that undertake it, which is why it should be integrated into every Board’s activities. With the availability of online surveys that are easy to administer and analyse, it’s more straightforward than ever for Boards to regularly monitor performance, uncover areas for improvement and drive their organisations to greater success.
Diligent Governance Cloud Board Assessment Tool
The Governance Cloud, the only integrated modern governance solution that enables organisations to achieve best-in-class governance. As organisations grow more complex and regulations more stringent, the scope of governance responsibilities evolves. Diligent’s Governance Cloud allows boards of directors to meet the demands in the boardroom and beyond with the ability to select the products they need that help them perform their best and work within their allotted budgets.
Governance leaders, executives and board directors rely on the industry-leading Diligent platform for the most secure and intuitive solution to board material management and collaboration. Diligent Boards electronically stores a board’s agendas, documents, annotations and discussions within a secure board portal.
Board directors are obligated to perform a host of varied duties and responsibilities. Diligent developed a suite of governance tools to help them fulfil their responsibilities accurately and efficiently. The Governance Cloud ecosystem of products includes:
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