The challenges associated with value creation drive us all. When I ask Company Secretaries what drives them, I hear that they want to have an impact in the boardroom, create value for the Chairperson and the members of their board, and bring governance to life. Company Secretaries are at the forefront and have great insights into the dynamics of the board. When the time comes to conduct an externally facilitated board evaluation, hopes are high that the evaluation highlights real issues, provides insights that board members can use to have a greater impact in the boardroom and increases overall effectiveness.
The market provides Company Secretaries with a vast array of different approaches for an externally facilitated board evaluation. The processes and quality of board evaluations have improved, and yet Company Secretaries are all too aware that there is skepticism in the boardroom. In the past, not all board evaluations have provided the desired insights, and some ended up being perceived as a waste of money. The big question therefore is what should Company Secretaries look out for? In my view, the answer is simple. Look for an evidence-based approach.
The seven hallmarks of effective boards
In this blog, I will focus on evidence-based patterns that are based on sound academic research. I have called them the seven hallmarks of effective boards:
- The composition of the board
- The ability of the board to use the strength of its members
- Clarity about roles and responsibilities
- Development of a common vision
- The ability to resolve conflicts between the board and management
- The structure and organization of the board’s work
- Regular reviews and reflection about the board’s work.
The composition of the board is probably the area that has received most attention to date, especially with discussions in the media about diversity and quotas for women on boards. But diversity is just a small part of the puzzle. Let´s look at what happens in practice. Organizations that have the funds tend to hire well–known headhunting firms that are briefed to find executives with a distinguished background, expertise, and a strong track record. More often than not, the exercise produces a board full of “achievers” and “alpha animals.” This type of selection provides a level of security and the feeling among all involved that they have done an excellent job.
While this is a well‐intentioned (but rather expensive) way to form a board, it by no means guarantees the formation of an effective board. On the contrary. It is not a question of education, experience, or past achievements; it is a question of complementary personalities, behaviors, and fit. Very few recruiters and firms systematically look at these criteria.
Board members’ awareness of their strengths and how they can be best utilized in the specific context of the board varies enormously. Some directors are highly aware, but others far less so. I often observe board members applying their strengths more by accident than by conscious decision. This lack of awareness becomes even more acute when they are questioned about the strengths of their fellow board members. Directors are seldom able to describe them in more than general terms.
Sadly, this means that one of the most powerful ways to allocate specific tasks according to the strength of an individual director remains underused. While some seasoned board members can be unwilling to learn, we have found that the new generation of directors has a different attitude. They are very interested in learning about themselves and how they can become more effective.
Roles and responsibilities are not always as clearly defined as one may wish. Some “grow” over time or are the result of a specific initiative of an individual board member and tailored around their agenda, skills, and needs. We have seen substantial “grey areas” of responsibility on many boards. The existence of these areas leads to situations where unpleasant or uncomfortable tasks and decisions remain unaddressed or delayed. This can cause daily conflict and inefficiency. Worryingly it can result in areas of risk not being addressed and destroying resources that could be used to create value for the organization and its stakeholders.
This sounds so simple and obvious – but in practice, it proves to be a real and at times, impossible challenge. Developing a shared vision and gaining the approval and commitment of all stakeholders is a process. The communication of a shared vision is essential: nothing is more damaging to a company than the revelation that there are disagreements on the board about vision, strategy, and subsequent action to be taken.
Now more than ever boards are challenged to lead “highly educated people with great potential” who are sensitive, observant and understand what the board is saying or not saying, doing, or not doing. Executives at one or two levels below the board have mostly been to first-class universities or business schools and have their ideas about the company and its direction. This can lead to covert or even open conflict.
Board members are more than ever challenged to convince these executives using the quality of their arguments and personality, to analyze conflicts and solve them. The size of this challenge should not be underestimated. A coalition or alliance between the board and management is crucial to success. Conflict can be an important part of making effective decisions which is why harmony is rare when an organization wants to leverage and realize its full potential. The board can serve as a role model for the development of a culture where conflicts are resolved constructively. This is important as the behavior of board members in a conflict will often be reflected in the culture of the organization.
Many board members have told us in onboarding coaching programs that they were “completely lost” when they joined the board and had to learn how to operate at that level the hard way, over time. The work of many governing boards is poorly structured, and new members have to “settle” into a system that works for those in the know but is not necessarily well–structured or logical to those observing or joining it. This deserves more attention; much can be done to improve the practical organization of the board’s work (like the preparation of the board papers, the distribution of the board papers, the agenda-setting, the management of the board meetings), often at little cost. Again, what happens at board level will often be mirrored at lower levels of the organization.
Regular shared time outside of the boardroom, where people have the opportunity to connect and reflect on their work, is appreciated by many practitioners and highlighted by writers around the world as a crucial component of any best practice process. In fact, in the literature on the work of boards, it is the one point on which there is an overwhelming consensus. With this level of agreement, why do so few boards plan regular time outside of the boardroom?
Every single hallmark detailed here is, in essence, a lever Company Secretaries, and Directors can use to increase their level of impact in the boardroom and be more effective. In an ideal world, all these form part of evidence-based board evaluation.
An evidence-based board evaluation that shows real data concerning the areas that make a board more effective, as is proposed, stays away from “subjective interpretations.” It provides meaningful insights and the basis for an action plan for every member of the board as well as the collective. It provides a solid foundation and a safe route for board evaluation that contributes to the overall value creation process.
Dr. Sabine Dembkowski is Founder and Managing Partner of Better Boards in London. Sabine is credited for having identified the seven hallmarks of effective boards. She and her team created an innovative online tool and have taken Board Evaluations and Reviews to the next level. Her clients include admired FTSE100 and FTSE250 organizations.
You can contact Sabine via firstname.lastname@example.org