How can you measure the effectiveness of your board?

The board plays a key role in continually assessing the health of the organisation, and in suggesting remedial actions where performance falls short of expectations.

But how often do boards review their own performance? Are the directors leading the business subject, collectively, to the same level of scrutiny?

Why board performance is a growing issue

A focus on board effectiveness is leading increasing numbers of organisations to take a more structured approach to measuring board performance.

The board represents the highest level of accountability in the firm. As a result, in today’s corporate culture of transparency and full disclosure, demands for its effectiveness to be measured aren’t surprising.

Boards are increasingly in the spotlight regarding their ability to ensure governance, their capacity to drive strategy and their role in delivering corporate transformation. Ensuring they live up to expectations in all these areas demands robust, structured performance measurement.

Carrying out an effective board evaluation

Among some organisations, annual assessments of board effectiveness have become commonplace. But with ‘board assessments’ or ‘board evaluations’ still an unknown for many firms, it’s worth exploring what these might include, and examining some best practices for a successful assessment.

Consulting firm Spencer Stuart offers five key criteria for a successful board evaluation:

  • The board has clear objectives for the evaluation.
  • A board leader drives the process.
  • The process incorporates perspectives from senior managers who regularly interact with the board.
  • The assessment process goes beyond compliance issues to examine board effectiveness across a broad range of measures.
  • Directors commit to reviewing the results of the assessment together and address issues that emerge.

These five points seem like a good place to start.

Having clear objectives is essential – you need to know what you intend to measure; the criteria you will use to judge success; and the outcomes you aim to achieve.

Having one of the board’s leaders drive the process makes sense; the input of someone closely involved with the running of the board provides the inside track, and avoids members feeling they are being judged by an ‘outsider’.

Equally, though, the process cannot be entirely inwardly-focused. An external perspective, from senior managers with close involvement with the board, is valuable.

Although the board is often seen as an instrument for ensuring corporate governance or compliance, it’s essential that a review assesses more than this. As we mentioned above, the board plays a key role in setting strategy and ensuring it’s delivered, in establishing and enforcing the corporate culture, and in driving change, whether that’s digital transformation or other innovations.

Any review should therefore include an assessment of the board’s effectiveness in all of these things, along with any other areas specifically relevant to your organisation.

The fifth criterion is arguably one of the most, if not the most, important. As with all review and evaluation exercises, there’s no point investing time in the process if the outcomes are ignored.

Your board must be committed to taking the results and acting on them. Sweeping any issues that arise under the carpet and failing to tackle areas identified for improvement makes the evaluation futile.

Put in place best practices to make your board more effective

However good your board, your business processes or your organisation as a whole, they could benefit from regular review. There are always tweaks and improvements that could be made.

Putting in place best practice approaches should mean that any evaluation you undertake has a better chance of delivering positive findings. And even less-than-welcome discoveries should be used as a springboard to improved board performance, helping to make the board’s processes, decision-making and actions better, for the benefit of the entire organisation.

How one organisation improved its own board processes

If you’d like to read more about how one board improved the information it provides to members, therefore making meeting preparation and the meetings themselves more effective, you can download a free case study. The case study, exploring Sirius Real Estate Limited’s approach to board meetings.

Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.

Source: Simplifie

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