Not all boards are created equally, so it’s no surprise that some are more effective than others. A lack of unity among board members, unclear paths to achieving the company’s mission and insufficient access to necessary resources all lead to ineffectiveness. So, how can non-executive directors strive to create a cohesive and well-running board? To figure this out, we chatted with NEDs about their experiences.
Understanding board effectiveness: the good, the bad and the future
What makes a strong board?
Respect should be a word used to describe the partnership between the board and the CEO. While there doesn’t need to be a team or friendly relationship, the best dynamic includes collaboration and mutual trust. An understanding of each other’s roles is vital for a cohesive and well-managed board. Part of this trust includes granting the board access to the right parts of the business needed to complete its duties. It should be able to act without the need of the CEO as a middleman.
There needs to be room for conversation. Real change happens when people are open to hearing other points of view. A CEO that is too involved can lead to guarded, less open conversation, stunting the growth and the work an effective board can achieve.
A good board should also be able to withstand a crisis and be successful even in instability. Internal factors keep the board on its toes, but as we’ve seen, external factors are just as much of a concern. The economy, supply chain, labor shortages and globally-scaled events can force a company to re-evaluate operations.
Identifying points in need of improvement
Inexperienced or junior NEDs can sometimes struggle with separating operational and board matters. This is especially evident in situations when they take on the NED role in addition to an executive job. Regular communication can smooth over this issue, but lack of, and inadequate engagement will hinder the board in multiple ways.
The first leads to a strain on the commonality in vision. The second could cause a disconnect between members and the Chair. Not understanding the business is counterproductive. For example, if you are the Chair of the Risk Committee, there should be a connection with the Chief Risk Officer to understand the vision and strategy for the business.
Role of the CEO vs Chair
A CEO should turn to the board in an advisory capacity, not just dictate. The right CEO should understand it is the board’s place to examine and critique weaker areas. This will help show potential flaws and pre-empt any issues arising.
The role of the Chair and its expectations are growing. Now more than ever, the chair should help reflect the views of the board, leading to a cohesive, sound unit.
If the CEO and Chair unite to where the rest of the board feels isolated, mistrust can arise, fueling suspicion on both. However, if there is no relationship between the CEO and the Chair, then this too causes issues, with no alignment and a split on strategy. Both can result in an ineffective board down the line.
Board member expectations and importance of the board pack
It’s the responsibility of every member of the board to be prepared. This includes staying up-to-date with the intricacies of the company and reviewing documents such as the board pack prior to meetings. Without having done so, it is much harder to make effective change.
NEDs need to be able to understand the core challenges in a manageable size set of documents. Board packs should be concise and focused. It’s easy to bloat these documents, but this can bury real issues that need to be addressed under swathes of pages. Board members should provide feedback on pack efficiency. If they’re not helpful, they should be revised.
Selecting board members for the future
In the past, the board selection process was viewed as one peppered with roles gained through family or other personal connection. Now, there is a slow shift towards professionalism, demanding the most qualified person in seat.
While there is no standard training or experience, many members are brought in because they hold a certain skillset needed to round out the board. This is seen especially with the growth of more CISOs and CTOs holding NED roles, bringing in experience, perspective, and knowledge of the importance of technology.
There also needs to be a balance between members who are NEDs that work full-time and those who are only NEDs. Portfolio board members are likely to give more time to the business while NEDs also working in the sector bring current and timely experiences. This allows for quick, pinpointed contributions from those who understand the nuances of the business coupled with a wider perspective. This angle brings in bigger picture questions with impartiality.
Both sides come with areas of concern including addressing problematic directors and big egos, managing time and interpersonal relationships. Evaluation of directors on an individual level can help ensure the board’s effectiveness is rooted in all decisions.
The board’s role in future planning
In the financial services world, a crisis at an external competitor automatically leads to one’s own internal investigations to determine if that weakness exists within. The issue is always looked at from an executive level. What would be interesting would be to understand how the board was involved and what challenges it faced. Could it have prevented the crisis or was it that the ineffective board was part of the problem?
While all companies are different, boards are put in place to help regulate and keep the mission at the forefront. With collaboration, communication and respect, it’s an achievable task.
