Companies depend on directors to make the tough calls. Here's how to make sure you have the most effective board possible
Every company deserves a great board—one that provides real insights, makes good but often tough decisions, draws on the skills and experience of its members, and provides real value for the company. But a recent National Association of Corporate Directors (NACD) study found that only one in four boards is considered truly high-performing. The NACD survey of nearly 800 directors and executives found that while nearly 60% considered their boards to be "effective," only 25% ranked them as "highly effective." A shocking 15% were deemed only "somewhat effective."
Here is some advice on what to do if your board is generally effective but you want to raise its game:
Fill in the Gaps in Board Composition
In today's rapidly changing business environment, a company can morph from a regional mono-line to a global conglomerate in 10 years or less. Unfortunately, the board's composition is often the last thing to keep pace with the corporate and strategic changes.
Take a long, hard look at your board's composition and ask: What skills and experience do we need at this board table today and in the next three to five years, given where we are going as a company? If there are some obvious gaps—such as a lack of industry experience—don't wait until a director retires to go and get the skills your board needs. The board size may balloon up for a year or three until the next scheduled retirement, but that's a small price to pay for the addition of much-needed savvy.
One board in the defense industry added four members when they recognized they had terrific financial expertise but not a single director with military or government experience. The quality of board dialogue changed overnight as financial acumen was complemented by strong insights about the industry and the context in which the company does business. Two years after making these changes, the CEO remarked: "My board isn't 10 times better today than it was a few years back. It's 10,000 times better."
Redesign Your Board Assessment
The same NACD study found that only 15% of board assessments were rated as "highly effective." Small wonder. Most board assessments are ho-hum exercises involving surveys. Boards that have changed their approach, however, have found that the assessment is an important lever in raising the board's performance. Here's how to do it:
Deep-six the surveys. The starting point of a useful board assessment is to interview directors individually for about an hour. Not only do board members become more engaged when the have time to express their views, they nearly always come up with useful ideas. This, no doubt, is the reason that 43% of British boards, most of which have been conducting board assessments longer than their U.S. counterparts, now use interview-style assessments. Large nonprofit boards where one-on-one interviews can be a challenge have addressed this by using focus groups, dividing the board into small groups for discussion. Both interviews and focus groups yield far richer insights than any survey can generate, creating the foundation for an effective discussion on ways to take the board from O.K. to outstanding.
Talk to management. Some of the most worthwhile board assessments incorporate feedback from senior executives who regularly deal with the board. Directors are often surprised to learn that the management team found real value in something the board considered matter-of-fact. Even areas of disparity are nearly always important to bring up, discuss, and understand.
Capitalize on the findings. One board in the utility industry held a 10-hour discussion on its board assessment findings, not because anything was wrong but because they wanted to make use of the comments that had been generated. They also had the courage to tackle some thorny issues, including frustration by management about a lack of director preparation. A year later, even a cynical company executive who had criticized the board noted significant change: "It's night and day. The board comes in ready to roll with a lot more focus. They really work hard."
Investment bankers also noted the difference, particularly the in-depth understanding directors had of the company's strategy (a topic of considerable discussion at the 10-hour offsite the year before) compared with other boards they had worked with. While 10 hours may be extreme, anything less than two hours tends to be superficial. For most interview or focus-group generated assessments, three to four hours is the norm for a full board debrief.
Create an action plan. The discussion should culminate in the creation of an action plan outlining at least three steps the board intends to take in the next 12-24 months to address priority areas brought up in the assessment. This provides a road map to ensure that changes are implemented.