Understanding the 7 Hallmarks of Effective Boards and Their Impact on Board Evaluations

It is often said that even in the best of times, the future remains uncertain. This truth is now more evident than ever, given the string of disruptive events we have recently faced from pandemics to recessions and supply chain disruptions.

In the past, boards and their composition may not have held significant weight in the eyes of company leadership. However, in today's unpredictable and increasingly volatile business environment, the significance of a well-structured board, possessing the right mix of skills and experience, has become indispensable in guiding a company through crises and profoundly influencing its overall success.

Assembling a board goes beyond bringing on members and assigning them the title “board of directors.” Today, boards face significant pressure from growing global competition, rapid technological advancements, shifting consumer expectations, and a changing regulatory landscape. The recent uncertainties from the pandemic have only increased the need for boards to be resilient and adaptable.

Boards are no longer just overseers; they need to constantly learn and evolve to improve their performance. The central question that arises is: How can this ongoing evolution be effectively facilitated? The answer lies in the careful implementation of regular evaluations of board effectiveness. When executed correctly, these evaluations go beyond just being procedural checklists. They become practical tools for awareness, learning, and improving overall performance and effectiveness.

This, however, leads us on to yet another interesting question: What makes an effective board??

Based on our research and our evidence-based approach to conducting board audits, we've identified seven hallmarks of effective boards. In today's article, we'll explore these "7 Hallmarks of Effective Boards" and how these can improve board evaluations.

What are the 7 Hallmarks of Effective Boards?

1. The strengths of the board.?

Our approach to assessing board effectiveness starts by acknowledging the strengths of each individual board member. This often catches board members off guard, as they expect a critical assessment; however, research has shown that time and time again, focusing on what works for the board is more effective than dwelling on what doesn't.

This emphasis on individual strengths is crucial in the contemporary business landscape, where the traditional grandeur of board dinners and behind-the-scenes negotiations has given way to a more virtual reality. Face-to-face interactions among board members have become less common, especially considering the challenges posed by the pandemic.

While platforms like Zoom or Microsoft Teams offer cost-effective and convenient alternatives, there is quite a significant downside. Board members, now accustomed to virtual meetings, may know less about each other, impacting their ability to fully grasp and leverage each other's strengths for the benefit of the company.

2. The strengths of the board.?

There is a lot of talk about board composition in many countries, especially regarding gender and women on boards. However, to make our boards truly effective, we need a more nuanced conversation – one centred on selecting individuals based on their skill set and the value they can bring to the board table.

Our board assessments reveal that expertise in somewhat "newer topics", such as digital, cyber, transformation, climate, and ESG, is not as well developed as the discussion of their importance would suggest. For instance, according to a recent survey by WTW and the Nasdaq Center for Board Excellence, half of board members acknowledge a lack of skills to address climate issues.

Boards face a decision on whether to prioritise specific subject matter expertise or instead appoint people to advisory roles. Opinions differ on this matter, with some executive search consultants advocating for well-rounded board members while others propose appointing advisors to address specific knowledge gaps.?

3. Clarification of roles and responsibilities.

The transition from an executive to a non-executive career is not easy, with some individuals requiring years to fully acclimate to their board roles. Whatsmore, many don't feel supported in the transition. According to a recent survey , slightly more than half of the respondents indicated that their organisations implemented an onboarding process for new directors. However, less than half felt adequately prepared by their onboarding experience to be effective board members, resulting in potential uncertainty and confusion.

As organisational pressure and operational demands intensify, the distinction between executives and non-executives becomes increasingly blurred, leading to potential conflicts. The hallmark of an effective board lies in the clear definition of roles and responsibilities.

4. Vision, goals, and focus of the board.

In boardrooms, the discussion surrounding a company's vision holds significant weight. Are all members on the same page? Does everyone at the table share the same vision? Does everyone understand the vision and have the same determination to see it through?

Once the groundwork for the vision is laid, achieving consensus among board members becomes absolutely critical. While we often see board members pay lip service to a company's vision, there are different opinions around the table about what that vision means in practice, the goals, and how it impacts the company. To be truly effective, all board members must have the same understanding of the vision, speak with one voice, and agree on the goals and focus.

5. The structure and organisation of the work of the board.

The truth of the matter is for boards to operate effectively, they require support to structure their work and conduct meetings successfully. This includes everything from establishing efficient work processes to ensuring seamless communication channels. We have found that companies backed by private equity and those in their early stages of growth often face challenges in establishing effective structures. These issues become even more pronounced in venture capital-backed firms.

The effective functioning of a board relies significantly on the coordination between the company secretary, chair, and CEO. Having a company secretary can be beneficial in addressing these challenges because they can act as a crucial liaison among board members.?

6. Regular reviews and reflections on the work of the board.

Taking regular time-outs for board members to connect, strengthen relationships, step away from daily tasks, and contemplate their collaboration is a beneficial practice. There is a strong and clear correlation between the time taken to reflect on how a board works together and its overall effectiveness. Despite compelling evidence, few boards take the time to pause and reflect in today's fast-paced world.

There are many reasons for this reluctance. Concerns often revolve around the perceived challenge of requesting time from busy directors and the associated costs incurred for facilitators and venues. However, when these costs are considered in the broader context, they pale in comparison to the potential toll of disengaged and dysfunctional boards.?

We're also noticing a change in how reports are shared, moving from general reports for the entire board to personalised reports for each director. Directors often express scepticism upon receiving a board effectiveness evaluation report, questioning its relevance to them. Individualised reports, however, provide personal benefits and contribute significantly to ensuring directors' active engagement in the board effectiveness evaluation process.

Final Thoughts

As demands on boards increase due to geopolitical risks, regulatory landscapes, and pressures from stakeholders, the need for effectiveness becomes crucial. Simply ticking compliance boxes is not enough; boards must become more effective as a cohesive group.

Board evaluations offer a pathway for organisations to achieve this effectiveness, and the challenge lies in extracting the most value from these evaluations. Understanding the seven hallmarks of effective boards offers a solid foundation for board effectiveness evaluations, consistently proving to positively impact the performance and effectiveness of boards worldwide.