Corporate events in the last decade have made it clear that boards can fail. Failure has come in various disguises: failure to manage risks, to proactively contribute to firm strategy, to identify the ‘right’ team, and in some cases, to deal with integrity issues and possibly outright fraud. It is also clear that we need better governance at all levels. The latter calls for increasing board effectiveness. In this article, the author shares four pillars that contribute to board effectiveness.
1. Quality, focus and dedication of the people: The quality of the board is enhanced by diversity in terms of industry and professional background, as well as diversity of gender, personality and opinion. Diversity brings specific expertise as well as more potential for innovation. Poorly managed diversity, however, can be disruptive as communication may become more difficult and trust may be lesser amongst more diverse directors. A strong board will develop processes to manage diversity well.
Boards should have a systematic board composition oversight, with regular assessment of capabilities required (from expertise to familiarity) and a current composition matrix, even for well-established boards.
The director’s area of focus and dedication to the firm’s activities are both essential. Focus could be diminished by directors misunderstanding of their roles and functions within the board. To reinforce their focus, boards establish their own statement of purpose and define their role in a manner that adds value to firm activities.
Well-focused boards distinguish the adequate context in which to perform a supervisory role and offer support to management. Such boards are quick to determine when a proactive risk oversight is needed but are also efficient in identifying, and in acting on, the need to manage its reputation during a crisis.
The quality of directors, their focus and dedication are the first pillars of truly effective boards.
2. Access to Information: Information is best when it informs the board about all the essential activities undertaken by the company and the issues facing it. Information architecture should also include external information, such as from social media and formal sources such as unions and other informal networks. The ability of the chairman to maintain good relationships with union representatives is an important source of information for the company.
Board briefings, analysis of the genepool and summary of financial analysts’ views are key to efficient information architecture. Committee reports are also fundamental in fomenting the effective architecture of information. Adequate reports must encompass analysis of specific issues rather than just recommendations.
Informal channels of information are key as well and should be well elaborate themselves for example, meetings with employees and informal meetings of board members, all need both structuring and some freedom.
3. Structures and processes: The composition of the board contributes to effectiveness. The independence of board members is also crucial. But so is their structured access to the right individuals. It is, in short, fundamental for the board to regularly benchmark its current composition and structures against ideal situations – and act on any divergence.
The board strategy process plays a significant role in increasing effectiveness. It strengthens firm strategy by contributing to define it, aligning it with objectives and ensuring commitment. The process also enhances the strategic reflexion of the board and reinforces the interactions between management and board. A well-designed strategy process ultimately enables boards to efficiently assess the company’s strategic risks as well as its strategic opportunities.
4. Group Dynamics: Dynamics are fundamentally linked to the culture of the board. Governance is enriched by the directors’ differences in opinions and constructive dissent: having a critical view of assumptions makes for an effective strategy.
Interactions between board and senior management are an important aspect of the dynamics pillar. A board culture that emphasizes accountability towards the pertinent stakeholders and that it is based on openness and constructive dissent adds to the minimization of such conflicts. It also diminishes the possibilities of directors’ over-confidence.
The chairman’s role is key in developing a successful board culture. And an effective culture can be partly formalized in writing so as to be easily shared and understood. Awareness of discussion styles (fast thinking, influencing, false yes, etc.) and decision styles (autocratic, consensual, indecisive, etc.) are key to evolve group dynamics.
The pillars discussed in this article should be constantly sustained. Boards keep fine-tuning themselves towards better effectiveness.
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