It is no secret: an effective board of directors is critical to the success of any organisation. Clear, strategic and focussed leadership that meets (or exceeds) the expectations of shareholders and stakeholders is imperative — especially in these times.
But what are the core characteristics that allow for value-creation in the boardroom? What are some of the foundational elements that lead to board success?
In this article, we seek to provide an overarching view of the attributes of high-performing boards.
Enhancing Governance with an Effective Board
1. The Right People
A truly effective board calls for a mix of directors with the right skillsets, interests, industry knowledge/experience, behavioural qualities and strong value systems. An ideal board is composed of directors who have the breadth and depth of experience to lead management while commanding the respect and confidence of their peers.
But the reality is that there are a myriad of factors that impact the board’s composition — from evolving regulatory requirements to closing a technical skills gap. However, regardless of external or internal requirements, the selection of board members should be the end result of a strategic exercise and a careful, deliberate process.
To obtain a macro-level snapshot of where your board stands in terms of its composition, the use of a skills/competency matrix might help. This may highlight or identify gaps and aid in the evaluation, assessment or selection of directors. See an example here:
2. Diversity: Differing Perspectives
European countries, such as Norway and Germany, continue to advocate for gender quotas in the boardroom. More countries are expected to follow their lead. But the global movement towards diversifying boards isn’t merely a socio-cultural exercise. Studies have established the positive impact of board diversity (gender and race, in particular) on company performance.
A diverse board yields different perspectives. This makes them less susceptible to “groupthink.”
Groupthink is described as the “…tendency for a group to make bad or poorly thought-out decisions because its members aligned themselves with one other, insulating themselves from outside opinion and reinforcing viewpoints they already share.” It places group cohesion and solidarity as a priority over independence of thought. A board with more diverse members will not as easily succumb to this mode of thinking because a greater number of personal, individual characteristics are at play.
Diverse boards exhibit a wider range of competencies, differing risk/reward orientations, and approaches to stewardship — all of which make for better identification of opportunities and innovative solutions in the boardroom.
3. Leadership: A Strong Chair
Great leadership attributes are required from the board, but more so from the Chair. The Chair does not only facilitate meetings, although that is critical to his role. The Chair also has to be effective in managing key relationships.
An effective board requires a Chair who can:
- support or work with a model of strategic governance
- strong focus on strategy development and oversight
- develop a partnership with the CEO
- acts as a “critical friend” to the CEO
- interface with shareholders
- serves as the collective voice of the board
- have the confidence and respect of the board
- governs with integrity
- exhibits wise (business) judgment and a strong commitment to the role
- communicates effectively
- tackles difficult subjects and poses challenging questions
- lead the board to collaborate and focus on the issues that matter
- sets the tone at meetings
- monitors board culture
This Harvard Business Review article synthesises the role of a strong Chair well:
Chairs must recognize that they are not commanders but facilitators. Their role is to create the conditions under which the directors can have productive group discussions. Good Chairs recognize that they are not first among equals. They are just the people responsible for making everyone on their boards a good director.Source: Harvard Business Review, “How to Be a Good Board Chair,” 2018
A good Chair engages the board and understands the value of individual contributions.
4. Good Board Practices: A Healthy Culture Inside and Outside the Boardroom
An effective board cannot do without good and healthy boardroom practices. Some of these practices include: regular attendance, director induction and education, measuring board performance, and managing meetings.
Meeting attendance is arguably the most basic demonstration of commitment to good governance. Without it, the board cannot be effective. As we made note in this blog post, directors who do not regularly attend meetings not only fail to fulfill their fiduciary responsibilities, but they also affect the integral, strategic work that the board has been tasked to accomplish. Attendance is a non-negotiable component for value-creation.
Induction and Education
Tailored induction programmes help bring directors up-to-speed, enabling them to get an appropriate understanding of the business and the environment it operates in. Continuing education is likewise essential for directors so they are made aware of industry, legal, and/or operational changes that might impact their roles and responsibilities. Effective boards work towards ensuring its members are on the same page.
Assessment of Board Performance
Great boards demonstrate that they are fit-for-purpose and self-aware. An internal exercise typically includes director self-assessments, but the board, too, should be able to collectively decide how to effectively measure their success as a body. The annual assessment of board performance helps promote a culture of accountability, transparency, trust and an openness to improvement and constructive criticism — all components of a high-performing board.
There are several factors that impact the substance and effectiveness of board meetings.
To highlight a few:
- board meeting materials should be circulated by the company secretary at least one week prior to the scheduled board meeting
- board materials should contain both forward-looking and retrospective information
- directors should come prepared to board meetings
- meeting minutes must be drafted, circulated, and approved
- the Chair must provide an environment conducive for healthy discussion, debate and/or issue-resolution
- the Chair works towards achieving consensus but not at the expense of principle(s)
(For a comprehensive take on the components of effective meetings, download our e-Book here.)
In line with this, here are some interesting benchmarks for effective board meetings:
The management of meetings can be streamlined with available technology solutions — such as board management software, or board portals.
Board portals are a centralised, highly secure, online hub designed for board administrators and directors to organize and manage meetings, access board materials and execute their governance responsibilities securely. From the circulation of paperless board packs to the use of digital signatures for resolutions, board portals modernise the workflow of board meeting activities in a compliant, secure, and efficient fashion.
The convenience of board portal solutions allow boards to focus less on administrative matters and more on strategic governance.
A high performing, effective board does not just “happen.” It tends to be the outcome of thoughtful onboarding and evaluation, strong and committed leadership, good boardroom culture and dynamics. It can take time, if not a couple of iterations, to get the right individuals around the boardroom table. But given the board’s crucial role in governance, it’s a worthwhile exercise. It can take your board — and organisation — from good to great.