Board roles are more complex than previously thought.
Previously, researchers, practitioners, and governance experts focused on 10 main areas where boards needed to be highly effective. However, new research conducted by Board Surveys with the assistance of Deakin University shows there are actually 20 discrete areas that contribute to the effectiveness of boards.
Read on to learn exactly what those 20 areas of effectiveness are.
Understanding the research
Our world-class benchmarked Board Effectiveness Survey has been used to review the effectiveness of over 350 boards across the globe including in Australia, El Salvador, Malawi, Malaysia, Mauritius, New Zealand, Tanzania, Uganda and the UK.
The boards reviewed include listed, private, government and not-for-profit organisations spanning everything from large banks to airports, land and treasury corporations, health networks, education facilities, hospitals, mining, superannuation, funds management, not-for-profit organisations, and many more.
A comprehensive review was completed in 2020 with the assistance of Deakin University, which included:
- Psychometric and statistical analysis
- Detailed literature reviews
- Input from practitioners and governance experts
The research identified 20 discrete factors of board effectiveness with an extra focus on organisational culture and integrity, organisational purpose, crisis management, ESG and sustainability and prioritisation.
The WhatWhoHowDo Framework
Board survey’s world-class WhatWhoHowDo framework is used to benchmark your organisation against equivalent organisations. The 20 most important areas of a board’s effectiveness are measured and explained below.
What – 1. Role clarity
Board members should display a clear understanding of their role of governance, providing oversight to add value. They should understand how their role differs from that of management and, as such, act accordingly. Appropriate documentation should exist to explain the role of the board, the Chair, individual board members, committees and the committee chair.
Who – 2. Composition and renewal
The board’s size should be appropriate and the process for recruiting new directors needs to work well. A comprehensive induction should be available along with appropriate diversity and ongoing renewal processes, including:
- Succession plans for the Chair
- Committee Chairs
- The addition or replacement of important skills and experiences
Board and committee members will have the right abilities, skills and experience for the current and future strategic needs of the company and the relevant committees.
How – 3. Chair leadership and effectiveness
An effective Chair is vital to company success, sets high standards, provides sound business judgment, and drives key priorities. The Chair should:
- Build healthy boardroom dynamics
- Conduct effective decision-making processes
- Ensure discussions stay on track – with a focus on key issues
- Be respected and trusted by all directors
How – 4. Committee leadership and effectiveness
The effective use of board committees supports the board’s work, spreading the workload effectively. Committee chairs need to set clear agendas and expectations for management with useful reports and recommendations. In addition, committee Chairs should communicate well with the board, ensuring a positive working relationship with management.
How – 5. Performance management of the board
The board must act independently of management. Board members and committees should form their own judgements and opinions. Appropriate action should be taken in cases of unsatisfactory commitment, performance or questionable behaviour. Well designed performance management for board members will also ensure assessments of the effectiveness of the Chair, committee Chairs, and individual directors.
How – 6. Dynamics in the boardroom
The board must work constructively as a team. Boardroom discussions should be constructive. Disagreements between directors are acceptable but directors should not be disagreeable. Directors should communicate well and speak openly and honestly without fear of criticism, particularly when voicing a minority position. Directors must value and respect all contributions.
How – 7. Board delegations
The financial and non-financial authority delegated to management and committees by the board must be appropriate. Both board members’ and executives should have the same view about what matters should be presented to the board or to a committee for approval, endorsement or for information only.
How – 8. Board/CEO relationship
A constructive working relationship between the Chair and CEO is vital. A supportive and collaborative yet independent association is best. The board should have confidence in the CEO’s performance while managing it effectively on behalf of the board. Appropriate input from, and feedback to, all directors should occur from those overseeing the CEO’s performance on behalf of the board.
How – 9. Board/Management relationship
Effective working relationships between the board and management are also important. They should be collegial and respectful, focussing on the independence of mind and judgement. The board should have robust and detailed discussions with management while offering clarity of direction. Management should also communicate bad news to the board efficiently. A quality board enhances management’s thinking and decisions with relevant reflections, advice, encouragement and, when necessary, constructive challenge.
How – 10. Information management
The board requires relevant, clear, succinct, timely and forward-looking information in an appropriate format. This can include information about the organization’s performance and any present or emerging strategic issues. This should be given to the board with adequate time for reflective thought.
How – 11. Meeting management
Maximising discussions during board meetings is possible by avoiding unnecessary repetition of information that can be found in board papers. Management involvement should contribute to board effectiveness in all meetings. The company secretary will help the board fulfil relevant responsibilities along with written and verbal reporting from committees.
Do – 12. Purpose and strategy
Both the board and management should agree and be committed to a common purpose and vision for the organization. The board sets the parameters, and management prepares the strategic plan. This board should take into account relevant external factors that may influence performance and key drivers that may affect it. The strategic plan should only see board approval after a rigorous review.
Do – 13. Board priorities
The board should spend an appropriate amount of time on issues that will make the biggest difference to their company over the next five years. To ensure this, boards must be aligned on the main priorities and objectives for the year ahead. Deep dives into the most important issues and the success of major projects should be performed regularly in meetings that have a good balance of strategic, performance and compliance discussions.
Do – 14. Organisation performance
The board and management should have a shared commitment to the measures that track performance via an effective performance management system. Agreed accountabilities should be cascaded down throughout the company with the encouragement of a strong culture of performance from the board. This should include:
- Appropriate benchmarking
- Challenging goals
- Ensuring appropriate action when performance measures are not met
Do – 15. Organisation culture and integrity
The organisation’s culture, ethics and integrity needs to be a big focus of the board. The board should walk the talk and model high standards. The board plays a significant in shaping company culture and driving cultural change (if required). It should also ensure there are good processes to actively manage actual and/or perceived conflicts of interest. Stakeholder management should also be handled well with effective governance procedures to protect the rights of employees, ensuring their health and safety and that their pay is not short changed.
Do – 16. Governance of risk and compliance
The board and management should always be well prepared for a crisis. This can be difficult, but it is made easier by ensuring an agreed view on appetite for risk. A comprehensive and effective risk management system with effective compliance procedures and internal control systems are also key. The board should receive appropriate information on how the organisation’s risks are managed. The current environment requires an understanding of possible risks of cyber-attacks, and the loss of customer or other sensitive data.
Do – 17. Executive talent and succession planning
Boards need to take an active role in overseeing the development and growth in their company’s leadership talent pool. The identification, motivation, development and retention of quality talent makes a big difference to the long term sustainability of the company as does good succession plans for the CEO and other key management roles.
Do – 18. Executive remuneration
The board must take steps to ensure that the CEO has an appropriate and well-structured remuneration package and incentives, in line with the market and based on well-documented criteria. The same applies for key management personnel.
Do – 19. Continuous improvement
The board should run regular reviews of its overall effectiveness to identify possible improvements. The goal should be to identify new and improved processes in order to be more effective. Directors should keep tuned in to new developments and innovations via both self-study and training (as provided by the organisation).
Do – 20. Organisational value
The board must always add organisational value in as many ways as possible. Be it the organisation’s performance, sustainability or its reputation, the board should seek to make a positive difference and add value wherever possible.