What I've Learned From Developing More Effective Boards

This article is about the insights I’ve gained from developing more effective boards. I’m not just talking about ‘leadership development programmes’, but more a fully integrated approach to board evaluation, one that’s grounded in data and underpins a genuinely collaborative approach.

Over the lifespan of an investment there is a CEO turnover rate of over 50% compared to a 15% rate in the world’s 2,500 largest public companies. Why?

In around 50% of cases, the change in CEO was unplanned and was due to individual underperformance. This ‘underperformance’ was, in many cases, simply caused by a mismatch of the skillset with the requirements after a change in strategy, ‘human incompatibility’ with other board members, the incapability to gain the trust of the shareholders, a lack of empathy to convince / lead within the organisation or not acting as a role model for the employees – to name but a few.

It’s surprising how little effort is presently put into the systematic development of executive boards of portfolio companies, considering they’re supposed to be the key drivers of value creation in the portfolio organisation. Having said that, I also have to confess that many development programmes or board audits offered are ill-suited to drive value creation.?

Here are five prerequisites to enable board audits and development programmes to provide a return on investment and a positive impact on value creation.

1. Ensure that any board audit/board development is an integral part of the value creation process. Anyone engaged in conducting a board audit and/or board development programmes must have an in-depth understanding of the value creation plan of the organisation and integrate the insight into the audit/programme.?

2. Provide for an evidence-based approach. A lot of data can be collected but it is only useful if it is the right data. In our analysis we found that sadly more often than not board audits touch on issues/themes where there is no evidence whatsoever that could have an impact on effectiveness and value creation.

3. Ensure that you provide management with real data. The members of executive boards are achievers and clever people in their own right. They want to succeed and develop, look good and develop their own careers. In our experience they do engage if they see real hard data that provides them with genuine insight that is really relevant to their role.

4. Provide the management with a safe, neutral and confidential environment to reflect about the data collected and explore which actions would help them to strengthen their own position and that of the collective board in relation to the value creation plan.

5. Establish a mechanism so that data can be collected on a continuous basis aso that the executive board can monitor progress.

Once you have ensured that these five prerequisites are in place, you’ll need to determine which are the crucial pillars of effective boards that ensure superior returns.?

Our research shows that there are seven pillars or ‘hallmarks’ of effective boards, and each one of them can drive value creation. They are;

• The composition of the board
• The ability of the board to use the strength of its members
• Clarity about roles and responsibilities
• Joint vision
• The ability to resolve conflicts between the board and management
• The structure and organisation of the board’s work
• Regular reviews and reflection about the board’s work.

The composition of the board

It’s crucial to understand how different areas of expertise, preferred roles in a group setting and personality styles complement each other and fit into the development cycle of the organisation and the value creation plan.

The ability of the board to use the strength of its members

It’s important that the individual members of the executive board understand their own strengths, how they’re perceived, the collective strengths of the group and how all can be leveraged to implement and execute the value creation plan.

Clarity about roles and responsibilities

Unfortunately, ill-defined roles and grey areas of responsibilities are the norm rather than the exception. Clarity and transparency of roles and responsibilities need to be in place.

Joint vision

A clear and common vision and orientation is pivotal. Transparency at the outset is vital.

Ability to resolve conflicts between the board and management

Effective executive boards and their members understand how to resolve conflicts between the board and the next management level.

The structure and organisation of the board’s work

The organisation of the executive board’s work depends critically on the board secretaries and the interplay of the chairman and CEO. Effective boards understand how to organise and structure their work.

Regular reviews and reflections about the board’s work

Regular time-outs, where board members can connect, leave the daily work behind and reflect on their work are crucial to success.

Better Boards helps you to understand the interplay of these hallmarks for each board member, to maximise the effectiveness of the board as a whole.?

A lot has been said about the unprecedented challenges boards are currently facing, from steering an organisation through the pandemic, to disruptive technologies, shifting demographics and geopolitical risks. Corporate failures have brought the importance of well-functioning and effective boards more to the fore.

The 7-Hallmarks provides a framework for year-on-year performance growth which can be objectively measured through both a self and peer review framework. Meaning the board can focus on growing stronger, more effective and more resilient in order to face these global challenges.?

Board evaluations themselves have gone through changes recently. Initially, they consisted mainly of interviews, then evolved into questionnaires. But now with the emergence of research based evaluations such as the 7-Hallmarks, we can see organisations increasingly looking for more quality data and actionable insights.

You can read more about our 7-Hallmarks framework here >>?https://better-boards.com/external-board-evaluations/

I’m not just talking about ‘leadership development programmes’, but more a fully integrated approach to board evaluation, one that’s grounded in data and underpins a genuinely collaborative approach.

Have a read - and do let me know what you think.