Recently, a number of pieces have been published with guidance for assessing how well your board of directors is performing.
They merit the attention not only of board members and their advisors, but internal auditors and risk practitioners (because of governance-related risks).
One is by Dr. Debra Brown of Governance Solutions (formerly Brown Governance).
The Top Ten Markers Of A High-Performance Board is the result of her 25 years of working with boards and makes some interesting points.
The ten attributes are:
- Practice participative leadership.
- Share responsibility.
- Align with purpose.
- Encourage high levels of communication.
- Focus on the tasks of the board and the results of the organization.
- Orient toward the future.
- Make use of diverse and creative talents.
- Respond rapidly to organizational needs.
- Have a healthy risk appetite.
- Are comfortable with dissent.
I like all ten, especially #6 and #9. This is what she says about risk appetite, which may surprise you:
An inordinate amount of focus has been placed on the downside of risk at the cost of upside opportunity. A high-performance board has a risk appetite suitable for the organization and the sector it is in — it decides on opportunities in a calculated and measured way, while at the same time acting with courage, wisdom, and common sense.
A different perspective is offered in 12 Questions to Determine Board Effectiveness. The twelve questions are true or false questions:
- My board maintains a proper ratio of governing vs. executing.
- My board possesses the required competencies to fulfil its duties.
- The frequency and duration of my board meetings are sufficient.
- How frequently does your chairperson meet with management: weekly, fortnightly, monthly, or otherwise?
- Is this frequency excessive, adequate, or insufficient?
- My board possesses the ideal mix of competencies to handle the most pressing issue on the agenda.
- The executive team is competent/capable. If "false," is your board acting on this?
- My chairperson is effective.
- Does your board effectively make use of committees? If "yes," how many and for which topics? If "no," why not?
- Recruitment/nomination of new board members adheres to a robust process.
- My board performs a board review annually.
- Think of a tough decision your board has made. Recall how the decision was reached and results were monitored. Was "fair process leadership" (FPL) at play?
These are all good food for thought, but are they sufficient?
While #7 is critical ("The executive team is competent/capable. If "false," is your board acting on this?") surely it should be #1, not #7!
How about these questions?
- Does the board exercise an appropriate balance of trust and skepticism when listening to the executive team? Does it at all times represent the interests of the stakeholders?
- Does the board persist with its questions when the answers from the executive team are insufficient?
- Does the board have a sufficient understanding of the organization's ability to create value for stakeholders and the environment in which it operates to be comfortable that the best strategies, goals, and objectives have been set among available options?
- Does the board have a sufficient understanding of those strategies and plans to provide effective oversight and constructive advice?
- Does the board have confidence in the ability of management to identify and manage risks to the achievement of its objectives in a dynamic and turbulent world?
- Does the board have confidence in the culture of the organization and behavior of its personnel at all levels?
- Is the board ready and willing to "fire" directors when they no longer provide the necessary value?
- Do the members of the board have sufficient access to members of the management team?
- Does the board receive the information it needs, when it needs it, in a useful form?
- Does the board set executive compensation levels and targets that balance the need to attract and retain talent with the interests of its stakeholders?
I think the board is unlikely to be effective if it fails any of these 30 questions, and there are probably more that can be asked.
For the board: consider these in your self-assessment and in driving necessary change.
For risk practitioners: understand the risk of poor or ineffective governance and consider how that should be communicated.
For internal auditors: understand the risk of poor or ineffective governance and find a way to help the board address them.
I welcome your comments.
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