Why Effectiveness is Important in the Boardroom
The word effective is defined by Webster’s Dictionary as: “producing a decided, decisive, or desired effect.”As you know well by now, much of the work I undertake centres on the model of the ‘effective board member’ with the belief that effectiveness in the boardroom is so essential, I devoted a whole book to explaining the journey of how to become effective!
Outlined in this book – ‘The Effective Board Member – What Every Board Member Should Know’ are the five overarching steps to becoming an effective board member. These steps are:
- Why become a board member
- What is your role?
- How to get an appointment
- What you do; and
- High performing board members.
Detailed within these steps are the simple and key principles of how you can move from being simply a functioning board member to being an effective one. But why does this matter? If we go back to the dictionary definition of the word effectiveness, we can examine how and why this principle is necessary for boards to be successful.
Principle A of the recently updated UK Corporate Governance Code (published in July 2018) states that: “A successful company is led by an effective and entrepreneurial board, whose roleis to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.”
Here, one of the key words is role. If we want to understand what it means to be effective, then we must decide what it is we want from the role. The role of an NED is usually outlined in a role description to make certain that the company where they serve as a board member is clear about what is expected and this should be decided in advance. The word ‘decide’ according to the same definition source talks of this being a decided course of action. Therefore, the boardroom is a group of individuals whose role is to promote the decided course of action i.e. to ensure the long-term sustainable success of the organisation or company. This is linked to the board’s key role as a strategic decision–making body as, if there is no clear direction, the board becomes ineffective and the organisation does not achieve its objectives.
The board is the highest decision-making authority body in any organisation from the smallest charity to the biggest conglomerate and as such, it has to be able to be decisive. The difference between a good board and a high performing board is how this decisiveness manifests itself when making decisions. A high performing board will not only make and record a decision, but will consider the quality of the decision that has been made and take into account how this decision impacts stakeholders. The 2018 FRC Guidance on Board Effectiveness states that: “Well-informed and high-quality decision-making does not happen by accident.” The guidance highlights issues such as:
- dominant personalities (shark like behaviour as described in the TGF Zoo),
- a lack of diversity which can lead to groupthink (as outlined in my book Boards Behaving Badly),
- inability to challenge effectively and poor quality papers among a plethora of other things (see figure 3 on page 9 of the guidance) as symptoms of ineffectiveness.
Boards must be collectively decisive with individual board members able to effectively contribute to this process. Training and development to help board members understand their role is a crucial part of board effectiveness and the Effective Board Member Programmes have proven over time to be a contributing factor in the appointment and contribution of competent individuals to boards across all sectors.
The first step in my book ‘The Effective Board Member – What Every Board Member Should Know’ encourages you to consider why you should become a board member on your journey to effectiveness. You must be able to identify and put into action the skills that make you a suitable candidate for a board in whichever sector you serve and there must be some level of interest in and passion for the sector in which the organisation operates. This emotional attachment will help you to put yourself in the position of the stakeholders and should help to ensure that decision-making remains ethical and has the desired effect. Examples of governance failures such as that at Kids Company saw the eye of the board taken off key business fundamentals. The more recent events at Sports Direct, BHS and Carillion have contributed to the government considering issuing guidance that means that all boards should appoint a member who works for the organisation and so can act as the real time voice of the stakeholders. Retaining passion, care and a desire for the outcomes of the organisation will help to positively influence decision-making and in turn, the level of effectiveness of the board.
So where can you learn more about how to be effective or assess how effective your board is? Here are some practical steps you can take:
We are currently recruiting for the next round of the Effective Board Member Programmes. The Programmes have over 600 graduates from nine countries and we are seeing an increase in competence in the boardroom worldwide. You can find more information about the Programmes here with special offers available for blog subscribers who book on October 2018 and May 2019 Programmes. Find out more here: http://effectiveboardmember.co.uk/non-exec
When was the last time your board undertook a Board Effectiveness Review(BER)? Reviewing the skills of your board, looking at succession planning, diversity, appraisal, review of board pay and the quality of your board packs all provide a good starting point for you to examine your overall effectiveness. At the governance forum, we have all of these and several other bespoke services available for boards of all sizes and in all sectors. Contact us today on 0845 505 1875 or by email at [email protected] book your service.
‘The Effective Board Member – What Every Board Member Should Know’ is almost a year old! The book went to number one in its category on Amazon Kindle when it was released and has been ordered and read all over the world. The book acts as a great training tool for your board members – new and old and can be purchased here: https://www.amazon.co.uk/Effective-Board-Member-member-should-ebook/dp/B075VH9WJ7
If you are a graduate of the EBM Programmes, have already read the EBM Book or have undertaken any of the BER services, we encourage you to share with your board, colleagues and friends the news that there is an answer to boardroom effectiveness. Also consider when the last time was that you undertook any training or development in relation to your role as a board member or collectively as a board… and get in touch!
I encourage you to take the time today to consider how you can produce a decided, decisive, or desired effect as a board member now and for the future.
Until next time…