The Value of a Board Review

A good starting position is to hold the simple thought that a cohesive Board can deliver an organisation its success. Whatever a measure might be of that success, cohesive Boards will and do have a positive impact on the organisation’s performance.

Most CEOs seek to work productively and collaboratively with their Board. This is appropriate; however, it can also lead to a situation where the relationship operates at a level that undermines the organisation’s success. Where the Board and CEO struggle to be aligned, then one of the first casualties will be the organisation’s performance.

It is a reminder of the saying “A house divided against itself cannot stand.”

The Importance of a Board Evaluation

We don’t know what we don’t know or who can capture it as well as D. Rumsfeld with: “As we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know.”

It is not beyond commenting that without a Board evaluating its operations ideally annually, then Directors cannot be certain of their overall performance and importantly effectiveness as a group.

Every Review Offers Value

Our own work with Boards shows the value of undertaking a review.

It is not about revealing any grand issue or deficit but in so many cases the value is in identifying a few key positive opportunities of where improvements can be addressed. It is often a learning that changes to some of the smaller improvement opportunities can yield considerable upsides for the Board as well as the organisation’s performance.

Board Reviews Often Deliver a Win-win Outcome 

Boards that make the most of a review are open to learning:

• what areas in its operations are identified for improvement
• any insights into how discussions and decision-making are perceived by Directors and Staff
• if the present mix of skills and overall diversity is appropriate
• whether the Board maintain a healthy level of focus on strategic matters
• how it may increase the level of confidence that stakeholders have in the Board
• what aspects of the Board’s succession planning needs to be actively managed in the next 12 to 18 months
• steps that the Board can take to maintain a strong focus on the organisation’s strategic objectives.

Typical Areas of a Board Review

It is likely that a review will address a range of areas of the Board’s operations including:

• skills and experience
• composition
• activities
• processes, and
• behaviours.

Whatever the nature of the review, what becomes of that report is the next big question. For every review ought to be followed by at least one substantive action. In our experience every Board review offers at least one gem for a Board to action.

Without this follow up then it is a missed opportunity for the Board to embed a continuous improvement culture among Directors and a sending of a powerful message to the CEO and senior Staff.

The Financial Reporting Council (FRC) in the UK stated when it released its publication in 2018 that the “primary purpose of the Guidance on Board Effectiveness was to stimulate Boards’ thinking on how they can carry out their role and encourage them to focus on continually improving their effectiveness.” (Our emphasis)

To Achieve Greater Board Effectiveness

The UK Corporate Governance Code (July 2018) contains useful commentary that offers insights into what is the focus to achieve high levels of governance and effectiveness.

It seems clear that for any Board wishing to elevate their role to become one of value creation then there needs to be a greater “focus on continually improving their effectiveness”.

In its Introduction the FRC states:
“The Code places considerable emphasis on decision-making and outcomes. It promotes a more inclusive approach to stakeholder engagement and encourages boards to reflect on the way in which decisions are taken and how that might affect the quality of those decisions. By encouraging a broader focus and a willingness to listen to different voices and influences, the Code, supplemented by the Guidance, supports openness and accountability in delivering the long-term sustainable success of the company.”

There are meaty elements identified such as stakeholder engagement, decision-making, becoming better listeners, together with the Code’s support of a Board’s openness and accountability in “delivering the long-term sustainable success of the company”.

Challenging Questions

The Code raises a number of reflective questions that are appropriate for all Boards to consider and at least address internally. Those questions are reproduced in full below:

1. How do we know that management is identifying and addressing future challenges and opportunities, for example, changes in technology, environmental issues or changing stakeholder expectations?
2. What proportion of board time is spent on financial performance management versus other matters of strategic importance?
3. Is the balance between the focus on immediate issues and long-term success appropriate?
4. Are we playing an active role in shaping long-term investment plans to underpin delivery of strategy and value creation?
5. Is sufficient board time allocated to idea generation, opportunity identification and innovation?
6. Are we using scenario analysis to help us assess the strategic importance and potential impact of our challenges and opportunities?
7. Are we securing the benefits of ‘big data’ to give us a competitive edge?
8. How will we assess and measure the impact of our decisions on financial performance, the value for shareholders and the impact on key stakeholders?
9. Are shareholders driving the company to act in a way that is out of line with its purpose, values, and wider responsibilities?

Culture and Decision-making

The importance of culture to an organisation’s health is accepted as both critical for performance and fundamental to the pursuit of effective governance. It makes perfect sense therefore that every review should seek to understand what is the Board’s role in underpinning the organisation’s values as well as providing oversight of the organisation’s culture.

While a separate area for the Board nevertheless there is a link to Culture in its decision-making, issues that go to what the Board’s agenda is, timeframes given for discussions, what information reaches the Board as well as the source and breadth of its information, together with how it goes about making its decisions, will have an impact on the organisation’s performance.

Simple Reflective Questions for a Board Discussion:

1. To what extent as a Board does our own way of operating reflect those values that we promote? And
2. As a Board, how do we assess the alignment of decisions, especially those addressing important matters, with our stated values?

Areas for a Board Review

Leaving to one side the important question of whether to have your Board review undertaken by an internal or an external means, whatever the approach, it should have professional rigor and lead to specific actions for improvement.

The FRC proposed various options that Boards may wish to consider as part of their review and with some tweaking the following reflects what has been flagged:

1. mix of skills, experience, and knowledge on the board in the context of –
—• developing and delivering the strategy
—• challenges and opportunities and
—• principal risks
2. clarity of, and leadership given to, the purpose, direction, and values
3. succession and development plans
4. how the board works together as a unit, and the tone set by the chair and CEO
5. key board relationships –
—• chair & CEO
—• chair & directors
—• chair, company secretary, executives & directors
6. effectiveness of individual directors
7. effectiveness of board committees
8. quality of the general information relating to organisation’s performance
9. quality and timing of papers and presentations to the board
10. quality of discussions and time allowed
11. effectiveness of the company secretary/secretariat
12. clarity of the decision-making processes and authorities
13. processes for identifying and reviewing risks
14. board communications.

Initiate Further Action

Board reviews can offer the needed clarity to initiate positive actions that will improve both the board’s governance practices and impact on the organisation’s performance.

Through the possible insights into aspects of the organisation’s leadership, accountability, decision-making, and board operations regular improvements can be managed. This in turn will enhance a director’s understanding of their role and responsibilities.