So how can a board become more effective?
As recent court cases reinforce: a board member can be sued, not for poor judgement, but rather if it can be shown that he or she did not take reasonable care. The Feltex case sent out signals that we should not just rely on the opinion of our advisors and the Lombard case reinforced that all board members have to know the facts and ensure transparency is evident in all communication. Likewise other cases are sending a clear signal that if you don't heed the warnings then as a board member you could spend some time in the care of Her Majesty's service.
If we had enquiring minds and the desire for open and honest communication maybe a few less board members would have been in the court room.
I was recently asked what characteristics do effective boards exhibit. Here is my response:
Firstly, effective governance is about having the appropriate rules about composition, degree of independence, committees and a balance mix of directors with the right competencies to enable the board to carry out its watchdog role.
It also needs to have the right measures in place so that the governance processes don't become an end in themselves.
In the boardroom the governing task needs to be viewed from many perspectives: strategic, resource allocation, operations, investments and so on.
Most importantly boards must identify and pursue good and robust decision-making practices.
Inducting and keeping board members updated on a wide range of topics including technology and social media is essential.
Boards today also need to focus board meetings more towards the future – maybe have fewer but higher quality meetings of longer duration.
In all of this board members need rules of engagement, both inside and outside the boardroom. We don't need board members captured by management, nor do we want board members encroaching on management areas of authority and responsibility.
Management too needs a clearer understanding of their Board's role and a 'conditional level' of trust must exist between the parties.
Boards may also need to rethink the sort of information that comes to boards. We need to understand the finances even better but the operational data may not have to appear for debate at ever meeting
Board members have to have a clearer view about where they and the organisation's value is being created or destroyed.
Boards that seek to be more effective will seek out the need for a more robust performance review process – removing the historical chair-controlled review and replacing it with independent and peer reviews.
Selection and re-nomination processes need tightening up – boards need people to enhance the collective wisdom as they go forward – this brings with it the need to continual educate and assess the capabilities and attract new, capable board members. In a similar vein the Chair and the CEO must know their roles and each work collaboratively to deliver on their fiduciary duties. With this intent they should not make decisions outside the boardroom but instead ensure the right climate, culture and appropriate information and processes create a healthy decision making framework.
And most importantly the prerequisite is that all board members have an enquiring mind and a willingness to discuss and delve into some of the detail - yet at the same time know when not to.