High Performing Boards

High Performing Boards

“Every company should be headed by an effective board, it is collectively responsible for the success of the company.” UK Corporate Governance Code

The role of the board in company success is indisputable, but what makes the board effective? An effective board has collective responsibility, which means there are demands on the non-executive directors (NEDS) to bring independent, strategic insights and perspectives in a collegiate manner. The combination of skills and experience in an environment of increased globalisation, increasing technological developments and complex business structures is critical to the success of the business.
In order to carry out their roles effectively, board members need reliable, relevant and timely information. An effective board will be accustomed to an open and transparent reporting regime and have confidence in the providers of the information. The board will collaborate with the executive team in a trusting and supportive way in order to determine what information is required to gain the necessary assurance.

An effective board will scrutinise its own performance, and that of the company, and drill down to the performance of the executive team. Effective board members challenge as well as support, they provide oversight as well as insight contributing as well as stretching the executive.

A high performing board gets the basics done well. In other words, it carries out its oversight and foresight functions effectively. It will need to operate with a properly-documented governance structure alongside a balanced board that appropriately exercises its non-executive responsibilities.

In his book ‘Good to Great’, Jim Collins encourages us to consider the difference between good companies and great companies. I would like us to adopt a similar mindset when considering the difference between good boards and great boards. In other words, how do we define a high performing board?

Business professor Jeffery Sonnenfeld defines high performing boards in his article ‘What Makes Great Boards’ as: “strong, high-functioning workgroups whose members trust and challenge one another and engage directly with senior managers on critical issues facing the organisation.”

A high performing board needs information that is timely and at the appropriate level. It is as important to know what information to leave out and processes such as reporting by exception will enable the board to operate effectively. For this to be useful, the board must have a culture that is open and trusting and demonstrate behaviour that is challenging but collegiate.

Harvard Business School professor Amy Edmondson talks about “teaming”, which she defines as gathering experts in a temporary group to solve problems that they may be encountering for the first and only time. To enable it, leaders have to shift away from defining team norms and building trust, and focus on quickly scoping, structuring, and sorting the collaborative work.

Particularly in a unitary board structure, high performing boards comprising of executives and non-executives operate together across a number of dimensions in order to get the best out of both types of board members. Although they work together with a common objective around the success of the company, executives and non-executives play different roles, sometimes as team members but at other times they are required to challenge, monitor and scrutinise. Independent directors bring a perspective that is quite different to non-independent directors; they bring an outside perspective not constrained by sometimes insular thinking, conflicting relationships or connections that ensure that they are too close to problems or circumstances that an organisation may face.

High performing boards rely on a robust governance framework and trust in each members’ competences and perspectives to provide scrutiny, challenge and appreciation of the risks and opportunities that companies and organisations face. The members are able to perform well collectively because there is a culture of trust and respect for each other and for the information they receive. They spend just the right amount of time seeking assurance but much more time on driving the organisation forwards and remaining strategic. They understand that the board meeting is only a small part of how they carry out their role and a great deal of work goes into preparing the information for those meetings by making sure that the inputs such as the agendas, reports, minutes and processes are right. They can focus on how they can bring their unique skills to the fore.

Organisations in every sector are facing technological advances that increase competition as well as a variety of other pressures that demand boardroom skills that are able to lead in this environment.

Less mature boards are focused on compliance and find it difficult to set board agendas that enable them to cope in this environment. A high performing board not only thrives in this environment but to some extent, it is where it performs best. The combination of different skills and experience of the board members, together with a complex and uncertain way forward alongside an open and trusting culture are the perfect ingredients to produce high performance. A high performing board is one that reflects on its own performance and is diligent in tackling anything that could impact on this. It is somewhat ruthless and relentless in ensuring that it can maximise its core strengths, which are:

intelligent, timely reporting and information;
well planned agendas;
a cohesive, well-informed board with an effective chair;
strategic performance monitoring and insightful interventions.

Using the governance forum Governance Framework to consider the 12 characteristics of a high performing board.

the governance forum Governance Framework which comprises three compliance drivers (resources, competency and execution) and three performance drivers (behaviour, impact and transparency) offers a good structure to be able to be able to assess whether your board is high performing and if you don’t currently sit on a board, how to recognise one. The items below cover aspects of all of the drivers in the framework.

1. Terms of reference for the board and committees must demonstrate comprehensive assurance and allow the board to be more strategic. There should be adequate and clear lines of assurance between the board and committees, avoiding overlap and making sure delegations are reviewed and appropriate. The Matters Reserved for the Board should be reviewed regularly and adhered to. It is important to maintain a governance framework that adds value to the business.

2. Decision-making should be supported by intelligent information. Information provided must be succinct, clear, timely and at the required level for board assurance. All information provided must also be at the appropriate level required for decision-making at board level and have the right amount of context. Emerging technologies should be used to obtain information.

3. Benchmarking and other measurements of best practice, should be used to assess the structure of the board. Comparisons and peer reviews should be used to determine the ideal size of the board, its structure, the timings of agendas, the frequency and length of meetings, minutes and reporting. Board charters and protocols should be developed for appropriate board conduct, behaviours and disciplines.

4. The board should set goals for its own performance, balancing strategic and operational demands. Each board activity should be made the responsibility of the board or the executive as appropriate. All goals and parameters for performance should be clear. Targets should be set for board members, the board as a whole and committees and include attendance, ambassadorial work and development.

5. The board must be diverse and drawn from a range of backgrounds and perspectives. It should be well-balanced and cover all key competences and specific skills. It is important that the board avoids groupthink, is able to think outside the box and is able to challenge and scrutinise. The mix of skills and experience should be regularly reviewed. Board members should bring insight from outside alongside broad strategic perspectives and experiences ranging across the most diverse boardroom issues.

6. The board should work as a collegiate with no weak links or bottlenecks. Directors should be trusting and respectful of one another and remain independent. The board should demonstrate trust and confidence and the ability to perform by utilising each member’s skills and being clear about their roles and responsibilities and how they engage with the executive team. Board members must have the right temperament, behaviours and interactions combining the analytical and risk-averse with the visionary and opportunistic.

7. There should be a robust recruitment and induction process in place to fulfil the requirements of the organisation or business. This ensures that the organisation makes best use of board members’ skills. Processes must include regular evaluation and a robust development process.

8. Evaluation of the skills of board members will determine how they are being utilised. A culture of continuous development should be cultivated by all board members. Their roles are fluid and not restricted to specialisms. The board should be good at determining how engaged it will be in critical management decisions. The board should evaluate productive behaviour and challenging and stretching contributions from all board members.

9. Boards must not be afraid to make difficult and clear decisions on a timely basis. The board should lead confidently, have rigorous debate, set the strategic direction and its members should be capable custodians of history, legacy and corporate plans. They make decisions that safeguard the organisation’s values, reputation and long-term success.

10. Board members must review performance objectives for management. Board meetings are not a comfortable place; they are challenging but supportive to the executive whilst ensuring that the correct level of assurance is gained and the executive is stretched. The board is competent in managing underperforming executive teams and getting the best out of the executive.

11. Strategic direction should be regularly considered and there should be a focus on achieving corporate objectives and getting the balance right between discussion and requesting assurance. The board should be capable and competent in providing stretching performance indicators to ensure corporate plans are monitored and achieved. The members must be proactive, insightful and bring fresh perspectives to influence the strategic direction.

12. Board members should open up their networks and have ambassadorial roles among all stakeholders as required. Board members must be visible to staff and other stakeholders. They should be supportive and knowledgeable about the organisation because of their interest and involvement. The board must engage appropriately with both internal and external stakeholders.

A high performing board has access to the right information at the right level and is aware of what is best practice. In his article ‘Building Better Boards’ in the Harvard Business Review, David A. Nadler puts it like this:

“The real challenge for directors isn’t regulatory compliance – it’s high performance. To achieve it, they need to systematically examine their purposes, tasks, talents, information and agenda.

“Select the right role. Assign the right tasks. Cultivate the right membership. Manage the right agenda. Get the right information. High performing boards are capable, co-ordinated, collegial teams focused on unambiguous goals.”

In conclusion, a high performing board has clear guidelines for its operation and is clear about its own governance framework. Since its members understand that they are the highest decision-making authority in the organisation, they ensure that they get that right. A high performing board is collegiate, trusting of the executive and has NEDs who bring added value through expertise in specific skills. The members work collaboratively, though not necessarily as a traditional team, and the result is a diverse, balanced yet robust, competent board recruited and inducted appropriately. A high performing board is able to lead the organisation to make the right decisions at the right time and its members are great ambassadors and reflectors of the many stakeholders. They assess on a continuous basis, based on a culture of excellence and best practice, their individual performance, that of the board and the teams that are accountable to them.

So, my question to you is: are you a high performing board?

Until next time…