How to build better boards
In the current environment of rapid change, boards are asked to play an even more crucial role in steering their companies through turbulent times. This means that ensuring the right non-executives are at the table and maximizing the board's effectiveness are key elements in the company's success. But we all are human, and even non-executives are at risk of not seeing the forest for the trees or letting group-think impact their decisions. A board is in many ways a team, so it should be coached like any other team.
Having an objective third-party board evaluation can open everyone's eyes to potential pitfalls and inspire the board members to evolve from good to great. So what elements can a board evaluation contain? It depends on the company's situation and whether the board needs a full-fledged review or just a small follow-up on last year's board evaluation. Here are a few suggestions, ranging from basic to a more advanced spectrum, based on our experience carrying out board evaluations for various boards in Europe:
Bespoke online questionnaire with anonymous answers
Most boards have already made use of some sort of online questionnaire. A relevant questionnaire should include general corporate governance questions as well as bespoke questions relating to the specific situations at the board and company level. Leaving plenty of room for anonymous additional comments often turns out to be highly valuable.
It is also relevant to invite a meaningful number of executive management team members to join the online exercise. A few times, we have seen that the board members agree they do a brilliant job while the executive management sees it slightly differently. The key is to identify the reason behind the discrepancies.
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Overview of non-executive's attendance, dependence vs independence, longevity and over-boarding
It goes without saying that it is important that all non-executives attend the board meetings. Moreover, all new non-executives, regardless of their successful past, must pay attention and prioritize attending the on-boarding program. Physical attendance matters. It should be tracked and is a premise for providing significant value. Most of the boards we have worked with experience non-executives (from overseas etc.) calling in instead of being present as challenging or problematic.
Other key areas to be tracked and evaluated are non-executive's dependence or independence, their longevity, and number of other board roles. Of course, whether the board follows good corporate governance must be monitored, evaluated, and explained according to relevant national recommendations.
Individual interviews of each board member
It is crucial to understand each board member's expertise, how and in what areas the member contributes, what concerns they might have, and what ideas they might have for improvement. We often experience that a few members hold back at the board meetings to be polite or because they presume they are only supposed to say something when it's within their core expertise while other board members would like them to become more engaged and lean in. Such a misunderstanding is unfortunate, however easy to deal with when brought to attention.
The individual interviews are also a perfect occasion to test whether all board members are aligned and can articulate such things as the company strategy and how the CEO is compensated. We have experienced non-executives at a company with more than 100.000 billion USD in turnover not being able to articulate the same strategy. If the discrepancy is not identified, but drilled down in the organisation, it is easy to understand why the implementation fails or divisional organisational silos build up.
Moreover, in terms of meeting the increased demands regarding good corporate governance, it is of crucial importance that all board members understand how the executive management is compensated, that they take necessary actions to ensure equal pay for equal jobs, etc. Any sign of non-executives not taking their responsibility in terms of governance is a warning signal.
A fundamental recipe for an effective board is a relevant mix of competencies. In order to obtain a mapping of the competences at the board, you need to define a method which is fact-oriented and based on each member's CV. Otherwise you might end up like one of our other clients who a few years ago tried to evaluate it themselves. For some reason all men at the table evaluated themselves as having on average two times as many competences as their female colleagues….
If you decide to do competence benchmarking, you will get inspiration regarding how you can work long-term with the board's succession planning. By comparing your board's competences with the competences of the boards of selected other relevant companies, you will learn in what areas you have more competences and in what areas you might be lacking. The discussion becomes interesting when trying to identify the reason why and what composition will be the ideal going forward.
Given that the board follows the agenda distributed, it will be possible to do a time-spent-analysis, divided into themes. This can be an eye-opening exercise in itself, and moreover, something that with few means can enable the board to revise the structure of the agenda going forward, enabling the board to make more time for strategic and future-oriented key discussions, a dilemma and a challenge all boards seem to be struggling with.
Board competence - risk - alignment
Most boards have in their annual report defined what they see as main company risks. Comparing the risks with the factual board competencies is an exercise that is still not frequently done, but for obvious reasons an exercise that might turn out to be of critical advantage.
It can be a challenge for the board to be certain that they have the right executive team. If the board ensures that top management is reviewed by an annual 360-degree survey, this might provide a clear indication of the team's leadership strengths and whether they are as good at managing "downwards" as "upwards". However, identifying the culture at the board level and comparing it with the culture in the executive team and the level reporting to the executive team might reveal more in-depth insights regarding cultural differences and where to focus attention to increase motivation and unleash potential. The findings will also be of significant value when recruiting and having new executives or non-executives on-board, as it tells what kind of cultural fit to look for.
Diversity of thought
Most boards agree that diversity of thought is a value driver. However, it can be a challenge to identify diversity beyond age, gender, and nationality. Using a simple psychometric profiling tool might add relevant information. By using a relevant profiling tool, you will be able to identify what kind of personalities you have on the board and what this might mean in terms of preferred work behavior, strengths, and potential pitfalls.
Having the majority of board members being risk-averse might be a good thing in a traditional, long-term, high-investment environment. However, if the agenda is innovation, this might prove to be a hinderance. If you have a group of non-executives who all have a natural inclination to take the lead, the risk is that they will be poor listeners and will spend a disproportionate amount of time discussing instead of taking time to understand the pros and cons.
We have mentioned some elements that might be included in a valuable board evaluation. The elements used will differ from board to board, as every situation is unique. Regardless of what kind of process and what key conclusions a board evaluation will reveal, one basic condition will always be paramount: the mutual trust between the board and executive management, and in particular the trust between the Chairman and the CEO. Without trust, the board will never become great. However, when trust is established in the board room, outstanding companies can be built for the benefit of the employees, the owners, and the entire community.
The Leadership Advisor Group delivers bespoke leadership services for board and senior executives. The breadth of our associates enables us to service clients globally. Our core services are:
- Board review and board recruitment
- Leadership assessment
- Top team effectiveness
- Organizational design
We also provide tailor-made advisory and executive search services, typically as an integrated part of our core services. Nina Naerby is the Managing Director of Leadership Advisor Group.
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