A stellar board packed with top talent is no guarantee of success – the corporate landscape is littered with examples of top-tier management teams that have steered their companies onto the rocks. So, drawing on a recent white paper by David Babington-Smith, Chair of a well-respected third sector organisation, we examine the seven characteristics of a high performing board.
1. Days per year
One of the most obvious distinctions between weak and strong boards is the annual number of days served. Does the board meet infrequently and react to proposals brought by the CEO? Or is it pro-active; commissioning reports, getting out on the ‘shop floor’, meeting staff, customers and stakeholders? Most of the literature agrees that the 10 - 12 days a year many board members spend on the job simply isn’t enough. And McKinsey research shows that higher performing boards can be active for up to 40 days a year.
2. A genuine commitment to excellence
When a board makes the collective decision to step into the high performing bracket, every member must commit to bringing their ‘A game’ to the table every day. A top-tier board is no place for executives who are happy to coast along, There must be no passing of the buck, and no hiding behind collective decision-making when things go wrong. Regular reviews are vital to ensure that ambition is transformed into reality, with annual board evaluations and objective 360-degree reviews based on personal interviews, ideally managed by an independent external assessor.
3. Increase directors’ exposure to the business
If you don’t fully understand your business, errors of judgement are inevitable. Yet in a survey of CEOs, 25% reported that board members did not appreciate the complexity of the businesses they oversaw – and the consequences can be disastrous. Theranos is a good example – the multi-billion-dollar blood testing company which collapsed in 2018 amid claims of corporate fraud. Although the business was complex, its failing were simple – board members were not qualified to understand the basic essentials of blood testing technology. A high performing board must have deep knowledge of the company’s operations, markets and competitors. And if gaps are identified, new directors with the relevant skills should be recruited.
4. Clear delineation between the board and management
A written protocol should be created to set out the roles of the board, the CEO and senior management. This will mitigate the risk of conflict and help to engender trust and mutual respect. It should clarify when decisions can be taken by management, and when they should come to Board. These can include financial delegations (spending limits, contract signing rights etc.) and freedom of action within overall policy constraints. And there must be a coherent framework for managing work that is delegated to sub-committees or advisory groups, with a clear mandate for each group, and a specified reporting mechanism back to the main board.
5. Nurture the senior management team
Results are only as good as the people who generate them, and even the most brilliant of strategies requires effective execution. This means the board must ensure that not just the CEO, but also the senior management team is working optimally. So a high performing board should oversee the appointment of senior managers and ensure that job roles effectively assigned. And they must question whether senior managers are effective and competent, and whether remuneration is appropriate and realistic. And the board’s strategic plan should encompass the scoping, drafting and pricing of senior role profiles.
6. Keep a tight focus on risk and risk management
Risk management is typically dealt with through the audit or finance committee, but it can also be applied to strategy and performance. Key business risks should be identified up front and regularly monitored, and boards should determine to detect and deal with issues as soon as they emerge, because aside from a failure to execute strategy, these risks may be the most significant challenges a company will face. In terms of having the appropriate expertise to adequately address new risks, if board directors lack experience in particular markets, products or operational areas, they should invite external experts to board meetings to address specific topics.
7. Openness, candour and respect is essential
According to an article in the Harvard Business Review, a number of seemingly great companies suffering sudden meltdowns showed no obvious pattern of board-level incompetence or corruption. Yet the article noted that, “well-functioning, successful teams usually have chemistry that can’t be quantified. They seem to get into a virtuous cycle in which one good quality builds upon another. Team members develop mutual respect; because they respect one another, they develop trust; because they trust one another, they share difficult information; because they all have the same, reasonably complete information, they can challenge one another’s conclusions coherently; because a spirited give-and-take becomes the norm, they learn to adjust their own interpretations in response to intelligent questions.” So the critical factor that determines a high performing board is not structural, but social - exemplary boards are almost always robust and effective social systems.
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