Board Effectiveness
Factors Explained

The board is unlikely to be effective if it doesn’t have an effective Chair. This section considers the extent to which the Chair sets high standards, exercises sound business judgement and drives key priorities. Whether the Chair builds healthy boardroom dynamics, conducts an effective decision making process, ensures that discussions don’t get side tracked from key issues and is respected and trusted by all directors are also considered.

Board committees should be used effectively to support the work of the board, including by spreading the board’s workload effectively. Committee Chairs need to be effective in their roles, including by setting clear agendas and clear expectations of management and providing useful reports and recommendations to the board. The effectiveness of committee Chairs in communicating with the board and ensuring they have a positive working relationship with the relevant members of management is also considered.

It is important that the board acts independently of management with board members and committees forming their own judgements and expressing their own opinions. Appropriate action should also be taken if there is an unsatisfactory commitment or performance or undesirable or questionable behaviours by a board member. Good performance management of the board will also ensure that time is carved out to assess the effectiveness of the Chair and committee Chairs as well as individual directors.

It is important that the board works constructively as a team and that boardroom discussion are constructive, with directors disagreeing without being disagreeable. The extent that directors communicate well and feel free to speak out openly and honestly without fear of criticism, even when voicing a minority position is also considered. It is also important that directors value and respect each other’s contributions.

Determining the views of both board members and executives as to whether the extent of the financial and non-financial authority delegated by the board to management and committees is appropriate is important. Management should also be clear about what matters must be referred to the board or to a board committee, whether that be for approval, for endorsement or for information.

It is unlikely that a board will be effective if the chair does not have a constructive working relationship with the CEO which is supportive, collaborative, yet independent. The board should also display confidence in the overall performance of the CEO and the CEO’s performance should be managed effectively on behalf of the board with the appropriate input being provided by all directors.

The board and management should have effective working relationships that are collegial, respectful and with an independence of thought. It is also important for the board to have robust discussions with management that go into the appropriate detail. The board should provide clarity of direction to management and management should promptly communicate bad news to the board. Good boards will also enhance management’s thinking and decisions with appropriate reflections, advice, encouragement and constructive challenge.

It is important that the board receives the relevant, clear, concise, timely and forward-looking information it needs in the appropriate format. This will include appropriate information on the organisation’s performance and with important strategic issues presented to the board with adequate time for reflective thought. Board member requests for information should also be handled well.

Discussion time during board meeting should be maximised with management not unnecessarily repeating what board members have already read in board papers. Management’s involvement in board meetings should contribute to the board’s effectiveness and the board’s in-camera sessions (without the MD, CEO or management) should be effective. The company secretary, or equivalent, will assist the board to fulfil its responsibilities and there will be clear written and verbal reporting from committees.