How effective is your Board?
As we recover from the aftermath of the recession, board effectiveness is an issue that is moving rapidly up on the governance agenda and it’s something stakeholders will be looking for.
Ironically, it’s the boards that want to ‘lift their game’ that are actively undertaking assessments. Why? Because they understand the need to continually improve and they want to know where they could run into an unforeseen risk, but mainly they seek feedback as to the board’s performance level.
The old adage ‘perception is reality’ reminds us that we need to ensure we, in boardrooms, need to be transparent and ensure people are appropriately informed. We find that assessments often reveal some very interesting and varied perceptions, some of which can be addressed quickly and others call for attention. It’s not surprising to find that board members’ view of a matter or its collective performance does not necessarily align with the way the board is perceived by management, shareholders and/or stakeholders. Sometimes it is perceived in a more favoured light than anticipated and at other times an assessment can reveal some home truths or matters that need to be dealt with. For example we have also found stakeholders can often hold quite a different perspective than the board has as to what the strength and abilities the CEO possesses. In one case an assessment revealed that the strength of the organisation lay with the CEO’s negotiation abilities, something that was obvious to those in the field, but not so obvious in the boardroom. Without undertaking a stakeholder assessment the work of this CEO could have remained under-valued.
When executed properly an assessment is a valuable continuous improvement tool and a key learning process: one that reflects the culture of the organisation and its board, highlights where training could be needed, turns attention to areas where risk is evident or emerging and where attention is needed to build the organisation’s reputation.
Despite the increasing awareness and execution of board assessments, care is needed to ensure the process does not fall short of its promise to ‘enhance board effectiveness’. Boards that seek a narrow view of their obligations may narrow down the scope of the assessment by seeking a compliance-oriented focus. From our experience it’s wise to look for a structure or process that can provide the board with a true examination including the impediments to board effectiveness.
The benefit to any board from an assessment, no matter its size, financial return or sector it operates in lies in the value of the shared insight board members gain into such aspects as the structure and decision-making capabilities of the board as a means to improve its composition, processes, decision-making environment and capabilities as well as the strength of its relationship with various parties by identifying before removing obstacles that are restricting or inhibiting better performance.
So how can boards and HR specialists make sure that they are getting the most out of an assessment they undertake while feeling confident that the results will lead them to ways of improving board effectiveness? In our experience, boards derive the highest value from a board assessment that is shaped by a few key principles:
The board has a clear and agreed objective for the evaluation. It is important that all members willingly embrace the assessment process and view it as a means to enhance the performance of the company, the board and themselves. This means responding appropriately to the questions – saying it as it is, not how they might like it to be.
The board members and other participants are all able to express their thoughts and respond to questions without being influenced by their peers, a consultant or the chair. This calls for an independent assessment as opposed to conducting a self-assessment.
The perspectives of senior managers, who regularly interact with the board, should form part of the process. We have found that senior management’s perception is often overlooked and yet this team of key contributors to a board and organisation’s performance often have the ability to see things quite objectively or can see where improvement in board processes could add considerable value to the organisation.
The assessment examines board effectiveness across a broad range of measures, from statutory to behavioural, from structure and process to availability of information and from boardroom to shareholder value.
Board members commit to reviewing the results of the assessment and collectively finding ways to address issues that emerge, mitigate risk where possible and to continue to strive for continuous improvement.
Board structures, regulatory and governance issues and cultural norms differ by organisation and country and these differences need to be taken into account. Therefore an assessment needs to be able to be tailored to the organisation’s current business context and include any relevant issues.
In countries where annual assessments are required, some boards find the process more valuable if each year they choose a specific topic, such as the board’s committee structure or its role in the strategic planning process, to examine more closely in addition to carrying out a standard assessment each year. The standard assessment when conducted annually provides the board with a means of reviewing progress on a regularly basis, whereas the assessment of a specific aspect highlights how that area is performing at the time of the assessment.
HR specialists can have a key role to play by providing valuable background support to a board when it’s undertaking an assessment by first seeking out the right assessment program for the board then ensuring board members and other participants are clear as to the assessment process and what is expected of them. As a support team, HR specialists could consider some of the following:
The scope of the assessment
In the first year the scope is often limited then expanded on over the following years as the board begins to seek further information relevant to performance of specific activities.
Considering the assessment approach that would be appropriate
Assessment processes can vary ranging from a questionnaire or an interview style to online independent assessments where the person participating can respond in his/her own time to a set of linked questions.
Identifying areas that should be included in the assessment
These areas could include the board’s understanding of its fiduciary duties, the governance process, individual and collective behaviours, communication matters, leadership issues, the board’s relationship to management and development of the board’s agenda, strategic intent or specific portfolios and necessary constitution documents.
Assist participants throughout the process
This includes establishing the contractual aspects, providing passwords, monitoring the timelines and all the details that make it easier for participants as well as ensuring the process runs smoothly.
The feedback from boards we have assessed continually reminds us of the value of an annual assessment as a means to continually ‘lift the game’; to ensure all members are giving their best, that the decision making environment is productive and the governance process is working effectively.
Published in the Human Resources Magazine June/July 2013 issue