Ethics and Governance

The hallmarks of an effective board

Jan 31, 2020

It can take several years and a lot of hard work to build an effective board. David W. Duffy outlines key measures that can be taken to improve its effectiveness.

It can take several years to build a fit-for-purpose board that has the leadership and dynamism to support the executive team.

The most important element in any governance structure is the Nominations or Talent Acquisition Committee. The purpose of this committee is to help the board make sound business decisions by appointing the right board members. If this committee does not do its job, then the board and the organisation risk stagnating through the lack of new ideas or no challenges to the status quo.

New appointments should be strategic and not tactical; they must bring unique skills and experience to the company that will have a real and tangible impact at board level.  This could include the world of digital, geopolitical insight, capital raising, or knowledge of a particular sector, such as offshore life assurance. Board appointments that are rushed are not a good sign of good corporate governance; each appointment should be considered carefully before being made.

So, assuming the board is populated with the right talent, here are a few examples of other measures that can be taken to improve its effectiveness:

  • Conduct regular external board evaluations to get an external perspective on the effectiveness of the board.
  • Conduct 360 reviews of the board directors.
  • Make sure that the information provided by the executives is assessed annually to ensure the board can do its job efficiently.
  • Have an annual work plan for the board and for all its committees. This will help set the agenda for the year, and will also ensure the board spends enough time on the future by delegating as much as possible to its committees.
  • Hold an away day at least once a year to reflect on the board’s strategy in some depth and to focus on specific issues, such as looming regulation or competition issues. This also provides an opportunity for the directors to get to know one another other better.
  • Invest in the capability of the board through a professional development programme. The board evaluation may well indicate what the directors might like in terms of development, but it is helpful to also ask them. Topics will depend on the company, but the programme could focus on new regulation and compliance requirements, sustainability, diversity and inclusion, etc.

David W Duffy FCA is the Founder and CEO of The Governance Company and the author of A Practical Guide to Corporate Governance, published by Chartered Accountants Ireland.