Board Performance
Some Critical Success Factors
Introduction
Figure 1: Components of Board Performance
This thought piece will attempt to break down the components that make up Board Performance. Consistent with the Institute of Directors 'Four Pillars', a Board’s performance is dependent upon governance best practice.
However, the achievement of best practice also relies upon achieving an Effective Governance Culture and having appropriate Director Competencies.
A further de-layering of the best practice onion (culture and competence) also requires that we understand the relative size of the organisation that we apply our thinking to. Small companies by international standards would require a different emphasis than say a larger global company like Heinz or BP.
The balance of Strategy/Execution/Governance in the role of a particular Board varies for each company and needs to be reflected in the Board Culture and the level of Director Competencies. Larger entities may have a strong ‘Corporate’ emphasis on Strategy and Governance whereas the smaller organisations, with no Corporate, will place more emphasis on Execution. However, both execution and strategy should be part of each type of a Board’s responsibility – the point here is the degree of emphasis upon each will differ subject to an organisation’s requirements..
An Effective Board Culture
The TMS framework for an effective governance culture includes a ten factor model. At the centre it is essential that the Board is effectively and appropriately Chaired with clear Alignment being evident internally, and with external stakeholders with respect to the purpose, strategy, goals and values.
In the top right quadrant of the model an ethos of energetically pursuing Stretch goals, within the context of an Adaptive thinking mode, facilitates the Board’s ability to change, learn, and perform to a high level.
The top left of the model indicates the Board needs to have Focus on its stakeholders requirements and be able to deliver the promise through Effective Problem Solving and Decision-Making.
So the top part of the model emphasises the 'hard' business factors and the bottom part is concerned more with the ‘soft’ or people elements of the governance culture. To the left these include a Balance in the people mix with all parties being well informed through a robust communication process. We all approach our directing in different ways – we think in different ways, we plan in different ways and we communicate in different ways. Some aspects of our directing might interest us more than others and therefore we will tend to place more emphasis on these activities. Ideally then a balanced mix of directing styles, gender and functional experience will enrich a Board’s ability be effective problem-solvers and opportunity finders.
The bottom right quadrant of the model represents the requirement for members to be both Empowered to express their Independent view and to action any delegated projects, committee roles or tasks. The Board dynamics also need to be Harmonious.
In contrast to the top left factor of Effective problem solving and decision-making, while debate may not always be harmonious, once the goals and decisions are agreed upon the Board must focus upon harmoniously and cohesively working together to achieve the desired result.
It is ideal that a Board regularly reviews the health of their Governance Culture to identify that which is working well, and that which needs some improvement. A Board Diagnostic Profile using the above framework can assist such an aim.
Director Competencies
As with a Board’s Governance Culture, in an ideal world all of the competencies listed below would be highly developed by all directors. In addition their functional, industry, technical professional and management skills and knowledge will also be important.
Figure 3: Director Competency Framework
Acceptable levels of competence in each of the factors indicated by the model may be desirable, but some Directors may be selected because of some special competence/s they have. For example, ‘Strategic Acumen’ and ‘Independent and Conceptual Thinking skills’ may be of special significance for the Directors of larger companies. So whilst they still need to be able to cover off the other competencies to an appropriate level, these higher level strategic oriented competencies may need to be more significantly developed.
Conversely for a smaller organisation, where execution is of most importance, Directors will need management skills, networks, industry knowledge and other more execution oriented skill sets. The lack of a corporate structure may require a more hands-on style of directing to ensure that key management functions are performing appropriately. This is a controversial proposition as conventional wisdom might argue for a ‘hands off management’ Board Culture. However, this wisdom is often rooted in the theory of larger corporation Board 'best practice'.
For each of the factors it is appropriate to highlight how the elements may be differentially emphasised for the larger versus the smaller organisation.
Strategic Acumen
In a larger company there is likely to be more of a focus on governance, policy, strategy, industry trends and organisational capabilities. Conversely, in the smaller company a Director may be more focused upon the skills of the management team, the tactics or details and how the execution of strategy is working or not.
Independent Thinking
Regardless of the size of an organisation a Director ideally needs to demonstrate confidence and courage of thought, speech and action. They need to objectively consider trade-offs and the associated consequences and resist Board self-protectionism and a “we’ve always done it this way” mentality.
Independence also implies avoidance or disclosure of real (or apparent) conflicts of interest. Perhaps the Director of a larger company may focus more on constructive changes to policy and strategy while the smaller company Director may have to have a bias towards thinking outside the square on execution issues.
Team Player
The contributions of any Director at a Board meeting should have a focus on adding value to proceedings and fulfilling their obligations and once the Board has made a decision all Directors should support its implementation acting as one voice.
Throughout Board proceedings members should respect and link effectively with each other, one to another, and with the Chair and the CEO.
Competent Networker
For the larger organisation a Director will ideally be a persuasive communicator and show an ability to develop new and important external contacts to the Board’s advantage. These may be peers or industry contacts. Whilst the same applies to the Director of a smaller entity they are more likely to be focused on mixing easily with management and staff in casual encounters or perhaps direct customers and suppliers, even if at a high level.
All Directors should also show good social skills in personal relationships.
Competent Contributor
This cluster is a mixture of motivation and skill. Directors will need to demonstrate a broad range of skills and experience consistent with Board responsibilities such that they can identify the exceptions to set targets and recommend corrective action. All directors should remain diligently well prepared for Board meetings, attend the full gambit of Board and sub-committee meetings and be prepared to enthusiastically engage in project work as required.
Accepts Responsibility
In order for a Board to meet its ‘Compliance’ obligations the individual Directors need to take responsibility for their part of the job. This means dealing well with multiple tasks and competing deadlines, having a “can do” attitude and being prepared to take on a reasonable workload.
Turning up for a ‘jolly’ and being on multiple Boards is becoming less acceptable and is seen as bringing this expectation of responsibility into question. Whilst it may still be the case that Directors of larger companies often have a larger portfolio than their counterparts in smaller companies, the dangers of just lending a ‘name’ to the Board (at the extreme) can have significant consequences in the event that things go wrong.
Accepting that this issue is a function of a Board’s requirements for breadth and depth, negative outcomes can and do arise on both sides of this ledger. The professional Director needs to protect against being spread too thinly and the smaller company Director needs to beware of not overly interfering with management prerogatives and responsibilities.
Values Champion
Ideally all Directors need to demonstrate that they understand and will behave in accordance with the agreed values of the organisation. This requires that they point out the values to others when they can do so, and avoid compromising the values for convenience. The Board as a whole should use the agreed values to inform their decision-making.
Conceptual Thinking Ability
The Director of a smaller organisation is likely to build mental models of the operating processes used by the organization, whereas their larger company counterparts will more likely focus on external strategic factors.
All Directors need to be able to visualize alternative solutions to problems and to use objective criteria to arrive at rational, logical solutions. However, they should also allow for emotional and values-driven alternatives too.
Finally, Directors must be able to effectively interpret and structure the available financial information they derive from scorecards and Annual Reports. Only then will they be in a position to evaluate which solutions that will best meet the requirements of the organisation’s stakeholders..
Conclusion
For a Board to meet its ‘Best Practice Governance’ obligations it needs to periodically take stock of its Governance Culture and Director Competencies. This type of ‘health check’ can be a valuable feedback loop and potentially provide an early warning system that allows for some minor ‘French Polishing’ and at worst avoids serious Board Performance issues.
Author
Dr. Paul Robinson, CEO Team leadership Services
Contact: paul@tls360.com
Note: TLS provides senior teams’ and leaders with feedback reports to aid their development.
