A comprehensive guide on elevating board effectiveness
Board engagement model and information infrastructure are two key components of effective board governance, according to Deloitte. These, along with an effective board of directors, a well-functioning corporate governance framework, and a board effectiveness assessment are critical to protecting your company and enduring board effectiveness.
When navigating corporate governance, companies frequently seek guidance on board effectiveness. In this article, we’ll delve into what works best for board effectiveness in high performing boards. As an additional tool to cultivate a growth-driven board, we prepared a dedicated whitepaper on how to build high-performing boards to maximize your board efficiency with practical insights and solutions.
What is board effectiveness?
The effectiveness of a board of directors refers to how successfully the board drives a business toward its goals. This goes beyond basic compliance: it is about the board of directors effectiveness in driving strategy, protecting key stakeholders, and sticking to the board culture.
Below we identified four key issues impacting the board’s effectiveness:
- Board composition
This refers to the board members’ combination of talents, competence, and experience. Important to note that the size of the committee structure also affects the effectiveness of board.
- Leadership and governance structure
Proper board structure guides a company’s strategy and facilitates strategic decision making. This makes sure that the business makes decisions promptly and keeps responsibility in check.
- Board diversity
Board diversity is important, but focusing on just one type of diversity is insufficient. Deloitte Chairman of the Board Mike Fucci noted that both social and professional diversity are crucial in expanding the range of viewpoints represented on the strong board.
- Communication and collaboration
Board discussions between senior management, board leaders, and board members must be open, transparent, and efficient. Furthermore, offering radical open feedback provides important insights..
|Tip: Organizations that strive for board performance frequently meet board effectiveness issues and challenges. That may be addressed via board effectiveness training.|
The 5 key factors of board effectiveness
Understanding board effectiveness and what works best is a critical pursuit. In this part, we’ll discover five components of improving board effectiveness:
1. Board mission and purpose
All effective boards should have a clear knowledge of the mission and purpose of the organization they represent. The mission of a company is what drives it, while the purpose is why it is motivated. Board effectiveness review and board effectiveness survey are two useful tools to see how closely your board adheres to the company’s mission.
When assessing gaps in board mission and purpose, board effectiveness questionnaires are quite useful. Check out our whitepaper on how to build a high performing board for a sample questionnaire for evaluating your board.
Focus on criteria such as alignment with organizational strategy, stakeholder accountability and whether your company’s goals are properly defined.
Once the gaps have been identified, boards should dive into the board evaluation process of who possesses the traits of an effective board member.
|Tip: To enhance board effectiveness in corporate governance or within not-for-profit organizations, prioritize a comprehensive board assessment process.|
2. Board membership
People are at the heart of any business. Consider the people who work on your board when thinking about how to improve board effectiveness.
Many state boards now have diversity and gender requirements, and nonprofit boards are following suit. However, diversity is more than simply gender and ethnicity; it is also about having board engagement and a wide set of abilities on your board. Therefore, to foster collaboration and set clear objectives, it’s advisable for boards to schedule at least one meeting per year dedicated to these crucial goals.
|Tip: To support effective board communication, it is recommendable to conduct a virtual board meeting in a data room|
3. Board governance
Effective board governance is essential for setting the correct corporate tone. To support corporate board effectiveness and governance, the board leader or lead independent director must distribute duties and critical roles of the board. While structural flaws are frequently overlooked, they might cause problems with the board’s operation.
|Tip: Create specialized board committees, such as audit, compensation, and governance committees. Also, consider pointing out individual directors and new board members as a part of board development.|
4. Board efficiency
Efficient board meetings are crucial for effective governance, which is why the board’s agenda management and modern technology play a central role here. Using technology, corporate secretaries typically prepare a well-structured board agenda, distribute board materials in advance, and manage time effectively.
In addition, seamless sharing of information among board members is vital. Technology like board portals and virtual data rooms (VDRs) enhance the secure distribution of materials and the creation of the board’s agenda.
|Tip: Have you been chosen among board members to write meeting minutes? Read our dedicated article on how to write effective meeting minutes as a secretary.|
5. Evaluating and measuring progress
It’s important to have a way to measure how well your board is doing in key areas. Regular assessment process and board evaluations help to measure its performance against your benchmarks. You can also use a board effectiveness checklist to identify any skill gaps. In particular, using this checklist at regular intervals helps to track progress in strategic planning, risk management, financial oversight, and diversity and inclusion.
|Tip: Establishing key performance indicators (KPIs) facilitates the assessment of the board’s effectiveness and the performance of the board leader.|
Common challenges in board effectiveness
Each organization and sector encounter unique and specific challenges when it comes to the board’s effectiveness. Here are five of the most typical difficulties that boards face:
Poor communication among board members may block decision-making and cooperation. Yet, employees blame 86% of workplace failures on a lack of collaboration.
Foster a healthy board culture, encourage open communication, and use technology to improve the board’s relationship.
Poor board dynamics
Board member tensions, conflicts, or cliques undermine collaboration and decision-making.
Continuous team building and team coaching create strong team harmony and ensure a healthy culture.
Most CEOs think that their boards understand important company risks and dedicate enough attention to risk management. On the other hand, executives are unclear if their boards contribute value in supervising today’s complicated risk landscape.
C suite executives should smoothly integrate growing risk categories into their existing board briefings and executive sessions, encourage management alignment on ERM integration, and provide board education.
Technology and digital transformation
McKinsey points out that many boards of directors frequently lack specific IT knowledge to match IT decisions and frameworks with business goals and strategies.
Evaluate and pick technological solutions that are dependable, user-friendly, and compatible with your systems.
Board succession planning
Failure to plan for shifts in board leadership can damage consistency and stability. Furthermore, the average cost of a new employee is over $4000, and it might take between 45 and 70 days to fill a post.
Create a strategy by assessing critical roles, current talent, and the potential for succession planning. Identify leadership gaps in your board composition, ensuring a seamless transition when key positions need to be filled.
Measuring board effectiveness
When it comes to board evaluations, it is important to assess the performance of your board of directors. Below we explained the areas to consider while assessing board effectiveness.
Measuring board effectiveness entails the following procedures and processes:
- Board annual self evaluation process
- External evaluations
- Key performance indicators
- Peer reviews
|To dive deeper in the process of measuring board dynamics or identifying the characteristics of effective board members, read our dedicated article on how to measure board effectiveness. For more in-depth insights and analysis, feel free to review our whitepaper as well.|
Three strategies about how to improve effectiveness of board of directors:
Improving the performance of your board of directors is a critical component of effective board management. The approach to accomplishing this aim entails employing a series of specific measures that can generate greater governance.
1. Effective leadership
To begin, consider how important effective board leadership is as it actually sets the tone for the whole board. EY states that the finest board members require traditional leadership principles and abilities, including strong ethics and integrity.
2. Consider the structure and size of the board
Achieving the correct board structure for corporate boards is problematic, yet it is essential also to not-for-profit board effectiveness. According to a Wall Street Journal analysis, the board should be large enough to effectively and efficiently perform tasks.
Some companies are fine with the number of five to seven board members. On the high end, up to 15 board members are appropriate to account for unexpected occurrences.
3. Don’t overlook the board culture
Board culture shapes the effectiveness of your board of directors. SpencerStuart states that high-performing organization with strong cultural and strategic alignment generates more financial growth and more employee engagement.
A dysfunctional or misaligned culture, on the other hand, leads to protracted underperformance by the company, low levels of customer satisfaction and loyalty, internal disputes, and low employee engagement.
How board portals improve board effectiveness
By 2030, the worldwide board portal market is estimated to be worth millions of dollars. This anticipated growth in board software use is due to its exceptional features, which range from faster communication to effective meeting management capabilities.
- Secure document management
Board portals serve as a secure, centralized repository for documents, allowing board members to easily access, evaluate, and collaborate on important materials.
- Real-time updates
Board members may remain up to speed on board-related developments with real-time updates and notifications.
- Efficient communication
Features such as comment and annotation tools, calendar integration, and access control enable dynamic conversations and polls, reduce email clutter, and ensure productive interaction.
- Electronic voting
Electronic voting simplifies decision-making, providing a convenient and auditable way to make important decisions.
- Data security
Board portals prioritize safeguarding sensitive information through features like audit trails, 2FA, data backups, and remote data wipe.
- Improving board effectiveness requires a clear mission, diverse membership, effective governance, efficient meetings, and progress evaluation.
- Organizations proactively seek expert board effectiveness guidance to address challenges, such as communication issues, poor dynamics, inadequate risk oversight, difficulty adapting to digital transformation, and a lack of succession planning.
- An efficient board of directors, structured corporate governance, and board effectiveness evaluations elevate effectiveness.
Do the board’s corporate governance guidelines provide clear standards for director qualifications, continued service, tenure, and removal?
The board’s corporate governance guidelines establish clear director qualifications, service tenure, and removal standards. These guidelines ensure directors meet expertise and diversity requirements, specify term limits, and outline procedures for removal, ensuring accountability in the board’s composition and conduct.
How can the board make the most of a capable corporate secretary to facilitate communication and manage board-related schedules and materials?
To optimize a capable corporate secretary, the board should maintain open communication, provide resources, create efficient schedules, invest in training, prioritize confidentiality, delegate tasks, evaluate performance, and employ technology.
Is every director consistently prepared for board and committee meetings, as demonstrated by his or her engagement and contribution? And if not, how is that feedback provided?
Not all directors consistently prepare for meetings. Feedback is typically provided through performance evaluations, confidential conversations, professional development, and mentoring, ensuring all directors engage effectively and contribute to the board’s success.