Board self-assessments provide an opportunity to analyze everything from how a board is structured to the performance of directors in order to pinpoint areas in need of improvement and equip the board to better meet company goals. While board self-assessment is already top of mind for many companies, some question how best to begin. The following guide is designed to help you zero in on which aspects of your board to evaluate, and how to apply the results for future success.
Board Composition
Building a “strong, qualified board of directors” - along with appraising its performance - tops law firm McInnes Cooper’s corporate governance best practices list. So what should you look for when assessing the composition of your board?
According to the Harvard Law School Forum on Corporate Governance and Financial Regulation, boards and corporate governance committees must “think critically” about the skills and attributes of their current directors, and consider how these relate to company oversight.
While the right mix of skills may vary from board to board based on factors such as industry type and company objectives, the Harvard Law forum paper notes that high-performing boards typically require several things: “agile directors who can grasp concepts quickly, fiercely independent thinkers who consciously avoid groupthink and are able to challenge management - while still contributing to a productive and collegial boardroom environment,” and “directors with different backgrounds… who understand how the company’s strategy is impacted by emerging economic and technological trends.”
Companies and their administrators can use these characteristics and criteria to assess their existing board and its culture, but they’re also useful for creating a strategy related to future board appointments, whether you plan to add new directors to expand the size of a board or engage in a board refresh.
Aside from analyzing directors’ skills and competencies, companies can use self-assessment as an opportunity to ensure that their board is sufficiently diverse. According to PricewaterhouseCooper’s 2016 Annual Corporate Directors Survey, 96 percent of directors agree that diversity is important, but global executive search firm Spencer Stuart found that in 2015 women represented just 20 percent of S&P 500 boards. Meanwhile, research from Catalyst, a nonprofit dedicated to creating workplace diversity, shows that organizations with the most women board members experienced a superior return on sales and return on invested capital, compared with boards that included few women directors.
Board Effectiveness
When it comes to evaluating the effectiveness of your board, consulting resource Boardroom Metrics recommends that companies ask the following questions:
- Do the board members’ skills and expertise match the strategic direction and plan of the organization?
- Does the information the board receives support its ability to assess risk, set direction and lead the organization?
- Is effective leadership provided by the board and committee chairs?
- Do the board’s processes facilitate effective knowledge-gathering, decision making, planning and execution of board decisions?
- Does the board work together well as a team and with management?
Honing in on what’s to blame for ineffectual performance can help a company identify the specific areas most in need of attention. It could be, for example, that your board members are disengaged. In this case, a board refresh might indeed be the ideal solution.
Perhaps your directors could benefit from better communication with the C-suite crowd, or possibly an outdated system for sharing board meeting documents and board meeting minutes is negatively influencing efficiency. Either way, the results of your board effectiveness assessment will determine your next steps.
Board Meeting Process
If you do find that your board meetings aren’t as effective as they could be, then your meeting process is likely to blame.
In an article titled “8 Ways to Better Board Meetings,” published by national nonprofit leadership and strategy practice CompassPoint, the company’s senior project director Marla Cornelius explained the importance of maximizing board meetings.
“The job of board members is very complex, and by nature, intensely collaborative,” Cornelius wrote. “Making the most of board meetings isn’t just a good habit to aspire to, it’s essential to good governance, strong leadership, and healthy organizations.”
When meeting process is a point of issue, adopting board portal software to streamline communications and enhance collaboration can help. Among other things, tools like this allow directors and administrators to refine how board meeting minutes are taken and distributed.
CompassPoint named board packets as a top tool for improving board meetings by increasing member engagement and making the most of the board’s “collective wisdom.” When companies transfer these materials online, along with a board meeting agenda, board members are capable of accessing meeting-related documents from anywhere in the world. That, in turn, makes it easier for members to come prepared and - as CompassPoint notes - have “the right focus at the right time.”
Corporate Management and Board Communication
A board assessment wouldn’t be complete without an evaluation of the way your board and your company’s executive management interact, as this plays a huge role in ensuring that a board can achieve its objectives and complete its mission to build and maintain a successful company. On the subject of creating a better board-CEO relationship, Trustee magazine writes, “Good communication between the board and CEO is essential, and this applies to both substance and style.”
Similarly, an article published by The Markkula Center for Applied Ethics at Santa Clara University states: “For a company to function effectively, the management team and the board of directors must be in general alignment.” Naturally, that can’t happen unless the lines of communication are open and all parties are able to interface effectively.
To assess the relationship between your CEO and your board, explore whether board members and management are able to have productive discussions in which everyone involved feels comfortable voicing their opinions. Additionally, it’s important to determine the degree to which the CEO and upper management openly accept the outcome of decisions made by the board.
Trustee magazine’s advice is to “aim to create a culture of trust where it’s safe to disagree, but everyone understands that once a decision is made together, everyone supports the decision whether they agreed or not.”
When companies embrace the board self-assessment process and use their findings to build a more functional board, they stand to gain big. As you launch your own board evaluation and engage in future assessments, always keep these fundamental aspects of board structure, performance and functionality in mind.
Article is sourced from Diligent.
