How Effective is your Board?

The principles of effective corporate governance apply to all jurisdictions and industry sectors and best practice is now well established. One of the central elements of a best practice governance structure is the board effectiveness review. The purpose of the effectiveness review is to improve the performance of the board and it is important that directors engage in the process with the understanding that these reviews can bring commercial value to an organisation. Globally, it is now best practice, and in some cases a legal or regulatory requirement, to have an independently facilitated review carried out periodically, but just as important is the annual internal review. Internal Review Directors should critically assess the practical application of best practice governance principles. They must look at the culture of the business to determine if there is a real buy-in to best practice processes and, importantly, whether this culture is encouraged and demonstrated by the board. To assess whether boards are performing effectively, there is a well-documented list of issues that should be considered.

Points to Ponder:
• Is the board the right size?
• Is the mix of skills appropriate?
• Is there constructive challenge at board meetings?
• Do non-executive directors contribute meaningfully?
• Do directors contribute beyond their technical specialisms?
• Are discussions both operational and strategic?
• Will the board make tough decisions?
• Is there a clear, board-driven strategy?
Feedback for Improvement It is considered good practice to conduct a feedback session immediately after each board meeting.
The board should consider allowing ten minutes to answer questions like:
• How did we do? 7
• Can we improve?
• What didn’t work well?
An Outside Perspective The periodic externally facilitated review should then build on the annual internal review with the independent assessors bringing an external perspective, challenging accepted ways of doing things and raising issues that directors fear could destabilise relationships within the business. Some
things an experienced adviser will look for:
• How well the Chairman runs the board
• Dynamics between the Chairman and CEO
• Constructive challenge from nonexecutives
• Directors’ contribution outside their area of expertise and their understandingof collective responsibility

• Dominant individuals
• Clarity regarding ‘discussion’ as opposed to ‘decision’ of agenda items
• Sufficient time being allowed for items to be discussed properly
• Existence of bad practice and bad behaviours
• Board living the values of the organization
• The independence of non-executives
• Appropriate diversity – diversity of thought and knowledge
• Relevance of the board composition to the strategic aims and business model

• Anything that has caught the board by surprise over the previous year
• Evidence of a culture of continuous improvement The contribution to strategic development is a key responsibility for the board so we need to assess whether:

• The board drives strategy
• There is a process enabling everybody within the organisation and key external stakeholders to contribute and engage with the strategy
• The strategy is regularly reviewed
• There are clear, unambiguous and measurable objectives
• The strategy is aligned to values, capabilities and culture
• The board is aware of the competition
• The board understands how value for shareholders, customers and other stakeholders is created
• The board understands the Key Success Factors
• The organisation has a good track recordin strategy execution
• The board is clear about risk appetite
• Performance is tracked When considering the effectiveness of your board, you should also give thought to how effective you are as a director.Here are some questions to consider
• Do I contribute outside my area of expertise?
• Do I keep up to date on all relevant issues and improve my capabilities as a director?
• Do I have regular performance appraisals with the Chairman?
• Am I prepared to disagree?
• Can I handle a forceful personality?
• Will I admit when I don’t understand something?
• Do I give the board my full attention?
• Am I sensitive to the needs and feelings of fellow board members?
• Do I prepare diligently for each board meeting?
• Do I make sure not to micro manage?
• Do I fully understand my legal duties as a director?
• Am I sensitive to the needs of stakeholders?
• Do I never allow myself to get conflicted?

When directors do not perform, boards can malfunction, leading to poor decisions causing organisational duress and, in extreme cases, insolvency. So, make sure you understand your responsibilities as a director and that you get the necessary support to ensure that you and your colleagues on the board can effectively discharge your responsibilities.