When evaluating board performance, taking the time to examine dynamics and how the board actually operates can reap valuable rewards, writes Dr Mary Halton.
Governance failures in the private, public and not-for-profit sectors have placed boards front and centre in the corporate governance debate, engaging the energies of policy-makers, practitioners and other stakeholders alike. Issues of board composition and structure, while important, don’t fully explain what drives effectiveness, and there is growing recognition that board dynamics and process are central elements of the equation.
Good directors want to serve on boards that work well, and they offer significant knowledge, skills and experience that can underpin constructive challenge and contribute to business success. It seems at odds, therefore, to suggest that boards as a whole sometimes fail to add value, or are less effective than they might be, especially in light of the abilities of individual directors. Yet many directors note that this can be the case, citing occasions where they have been frustrated by proceedings and unable to be effective in their role.
Underperforming boards can be difficult to spot from the outside because things often look fine on paper. Even for those inside the boardroom, it is not always easy to articulate what is wrong without sounding a little offside – not a team player, as such. But there are usually warning flags that all is not well; indications that the board is struggling to add full value despite the best efforts of directors around the table. Some of the factors critical to board effectiveness, and common signs of an underperforming board, are explored below.
Information transfer
Preparing well is essential for board effectiveness. But, for non-executive directors in particular, the volume of paperwork can be difficult to manage – particularly in light of the part-time nature of their role. This creates a significant reliance on management to tee-up the important issues and ensure that the information needed for informed decision-making comes to the board. Directors don’t need to know everything, but they do need the key information on a timely basis and in a succinct, user-friendly format. This seems like a straight-forward ask, but it is surprising how often it can be problematic.
So, if directors find themselves combing through significant amounts of detail to find the information they need, it’s time to re-visit the board pack and perhaps other aspects of information flow in and around the boardroom. It may be as simple as defining more clearly the information needs of the board, which differ considerably from those of management. Bridging the information gap is not easy, but doing it well pays long-term dividends.
Agenda and process
Time is limited and agendas are packed, so making sure that the board appropriately addresses all items is difficult – even at the best of times. Warning lights should flash, however, when proceedings are heavily weighted towards presentations from management with little time for substantive discussion. This often happens with the best intent, as management looks to address the problem of information asymmetry and provide non-executive directors with the information they need.
However, it can be used as a tool to limit input to decision-making, a practice sometimes encountered on boards where the culture is closed or defensive. Whatever the intent, the impact can be to constrain the value added by the board and impair its overall effectiveness. Careful agenda planning and process management are therefore central elements of a well-functioning board. Papers are read in advance by directors who want to actively contribute, and the meeting itself can then focus on open and constructive discussion, which in turn promotes good strategic decision-making.
Role clarity
If a phrase like ‘that’s a matter for management’ or something similar is a common part of your board’s lexicon, there’s probably something wrong. Well-run boards ensure clarity around the roles of those at the table and, as noted above, prioritise the healthy debate of pertinent issues.
When directors continually find themselves reminded that this or that is not a matter for their attention, it suggests that either they don’t have a clear understanding of their role and are overstepping their remit, or management does not want or value the input of the board.
Either way, phrases like this suggest a need to re-assess how the board operates if it is to provide meaningful input on strategically important issues.
Collegiality
The collective decision-making nature of a board helps to shape board norms, the unwritten rules of behaviour in the boardroom. In particular, directors aim to operate on a collegial basis, working toward an agreed approach and then collectively supporting the decision made. This approach is helpful on an effective board, where agreement is arrived at after thoughtful and open debate. But on less well-functioning boards, norms become somewhat distorted and substantive questioning can be frowned upon. Without the healthy debate needed for good decision-making, the board is vulnerable to groupthink – a problem widely associated with governance failures in Ireland’s banking crisis, for example. So if a board doesn’t welcome new thinking, or actively consider a variety of perspectives on strategically important issues, it’s probably time to re-evaluate the quality of its decision-making.
Supportiveness
In fulfilling their role, good non-executive directors look to contribute in a way that is supportive and provides objective oversight without undermining management’s authority. Yet, the inherent imbalance in the executive/non-executive relationship can give rise to difficulties at times, particularly as interactions are episodic and often take place within the formal atmosphere of the boardroom.
Emotional intelligence and well-honed interpersonal skills are needed. When these are lacking, the dynamic in the boardroom can suffer. For example, challenge may be presented in a way that undermines rather than supports. Or, the opposite happens and interactions become so nuanced and couched in overly supportive language that the real meaning is lost and issues are missed.
A temperature check, in particular an objective look at the level of trust around the table, can prompt helpful changes that encourage the board to really tap into what members have to offer.
Leading board effectiveness
The effective operation of the board, from information flow to boardroom norms, ultimately comes down to the skill of the chair and the openness of the CEO. Each has an essential role to play and a balanced relationship between them is crucial.
Problems arise, however, when the chair is too passive and follows management’s lead without encouraging independent judgement and constructive debate. Equally, a chair that is too dominant also signals trouble, perhaps overstepping the role and undermining management’s authority in the day-to-day running of the organisation. And no matter how skilled the chair is, the board cannot function effectively if the CEO – and the management team by extension – does not value input from the wider board.
So, when evaluating board performance, taking the time to delve deeper, to move past a checklist exercise and examine dynamics and how the board actually operates can reap valuable rewards in building long-term board effectiveness.
Dr Mary Halton is leads governance and ethics initiatives at Chartered Accountants Ireland.