Evaluating Board Effectiveness

Disorganisation at board level is, unsurprisingly, an extremely difficult subject to bring up. Boards are comprised of intelligent, highly qualified and experienced individuals so casting doubt over their effectiveness is always going to be an immensely sensitive topic. It is one that more boards are going to have to confront going forward though.

Last year, the Financial Reporting Council (FRC) said that 2017 would see it undertake “thematic reviews” of certain aspects of companies’ corporate reports and audits, where it believes there is “scope for improvement and particular shareholder interest”.

It indicated a key focus for its work will be monitoring and enforcement activities to ensure the UK’s “reputation for high standards of corporate governance and reporting”, and its standing as a global centre of excellence for accountancy, audit and actuarial work”. As the FRC points out, all of this contributes to confidence in the UK as a “destination for investment” and drives growth in the economy for the benefit of all.

Faced with greater scrutiny in future, boards, like everyone within the organisation, will have to demonstrate that they are delivering value for money. At Rialto, we’ve witnessed boards spend as much as three-quarters of their time in meetings looking backwards rather than devoting time to proactively developing strategies to go forward.

There will always be situations on which to reflect and urgent matters to deal with but often these leave little time for important long-term strategic decision-making simply because of poor organisation or leadership. Such misprioritising can go straight to the bottom line and result in organisations losing millions.

There are a range of factors that can cause a board to find themselves in this position from an overpowering chairman to groupthink and from a lack of motivation or even lack of knowledge on the part of board members. If the average board tenure is two years and a board member really doesn’t see a long-term association with the organisation, are they going to have the motivation and necessary buy-in to contribute their best strategic thinking to a five-year plan?

One of the best ways to make a board work more effectively is to carry out a gap analysis: what is the future perfect and what are the behaviours and changes required of the board to achieve this? It may be a painful process initially but will help to confront and address some of the issues impeding performance.

The effectiveness of the executive committee or operating boards must be another area of focus in this more scrutinous future. These are the people who deliver on the strategic goals and vision so poor performing committees can similarly cost the company dear and, if allowed to continue, threaten its medium- and long-term future.

Boards need to regularly review the performance of the committees in an open and transparent way. There are several methodologies that can be used for the review. Some mirror the processes used for board evaluations, such as using external reviewers. Rialto has also worked with boards on bespoke questionnaires, team coaching or one-to-one interview programmes.

It can be a good idea to discuss what the board would like the committee to do “more of” or “differently” or “better or less of”? And the basis of this should come from an assessment of whether it is performing – or indeed outperforming – when it comes to their terms of reference (ToR) and any other agreed success criteria.

The board should instruct the committee chair to undertake the same review with their committee members and discuss the findings and agree next steps with them. There needs to be solidarity though and a sense of working together for a common goal. Taking an accusatory approach won’t benefit anyone.

by Jan Floyd-Douglass and Richard Chiumento

Rialto is running an event Boards: We Function, But Are We Really Effective? on 23 June 2017. To find out more and book a complimentary place click here

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