Board Evaluations - The Four Most Common Findings

Posted: 30th May 2018

Leo Tolstoy once wrote that: ‘each unhappy family is unhappy in its own way.’

That thought applies equally to boards - however there are issues that arise in nearly every board evaluation.

Here are what I believe to be the top four issues - as well as what boards can do to address them.

1. Not enough time is spent discussing strategy

I often hear the complaint that too much boardroom time is spent on ‘compliance’, ‘credit analysis’, and reviewing detailed reports. At the same time, a Harvard Business Review article cited: ‘16% of directors say the boards they serve on understand the dynamics of their firm’s industries and 22% say their boards know how their firms create value’.

As one of key roles of the board is to set strategy, boards appear unwilling or unable to fulfil their role.

What can be done?

• The Chair needs to revisit how the Board is operating. This includes revisiting basics such as the agenda.
  • Does it include the right topics in the right order to address business priorities or do you use the same agenda every time?
  • Where do strategic issues, such as what is happening in the industry, sit in the agenda?
  • At the beginning, when board members are fresh, or at the end of the meeting when you will be under time pressure?
• Clearly indicate in the agenda what the purpose of the item is. Avoid the tendency to waste time having the report-preparer give a summary or report out on what is in the board papers. Assume the directors have read the papers, ask for their input, comments and/or approval. Spend time exploring what is not in the papers and needs to be considered.
• The most innovative approach I’ve heard about (by the author Nancy Kline) is for the agenda (shared with directors in advance) to be reshaped as questions.

For example, if ‘Financial Results’ is the agenda item, the two questions to the directors might be:

• “What did you see in the documents that we should discuss?”
• "What concerns do the papers raise for you?”

In turn, each director has the floor to give his or her input. In addition to having more meaningful discussions, it ensures that directors have read the materials.

• Schedule time in regular meetings to discuss strategy. It’s surprising how many agendas do not include the ‘s’ word! Organise strategy away days where directors actively participate in broad, long-term thinking about where the industry is heading and what it means to their firm. They should bring their knowledge to bear - not rely on the executives and consultants.
   

2. The board pack is large, unwieldy and unhelpful

This issue relates to the first one. Board members receive large board packs, they read the materials and valuable board time is spent discussing what they have read; often in great detail.

The board then asks for more information, and the pack continues to expand, taking increasing executive time to produce.

What can be done?

• Hold a meeting of the board and senior executives (those who produce the board materials) to set the understanding of the board’s role, what they are aiming to achieve, and what information they need to fulfil their duties. An animated discussion, exploring what is useful / not in the current deck, what information would be useful, and how much time the preparation of the materials requires is the goal.
• Armed with that common understanding, walk through a set of board papers. Discuss specific changes to that pack, in content and presentation, that would benefit both groups.
• At the end of each board and committee meeting, take five minutes to discuss the documents provided, and really test it against what you all decided you wanted to achieve when you discussed it previously (see above).
   

3. Lack of clarity regarding the role of the board and board committees

An often-heard complaint is: ”We cover the same materials in the xxx Committee as we do in the board”.

At the core of this is a lack of understanding of the purpose of board committees, and how they relate to the main board.

Simply stated, a board committee exists to service the board, to ensure the main board does not become overburdened with too much to cover on its agenda. Similar to an Executive Committee, delegation is appropriate and useful - abdication is not.

A board committee delegates’ responsibility to a board committee is that they will ‘review’ issues in line with its mandate and ‘recommend’ actions to the board. For example, a Remuneration Committee will recommend proposed executive compensation to the main board for its approval. The Board members who are not Remuneration Committee members need to understand the recommendation, challenge it, and decide to approve or not.

What can be done?

• Conduct a full review of your board’s Articles, Delegated Authorities and Terms of Reference. Do the same for the committees: Are they and the ‘review and recommend’ mandate clear enough?
• Consider if you have the ‘right’ committees for your firm. There are expectations by the regulators however they are not set in stone. One firm I worked with had a main board and audit committee, with the same participants in both. If the same people are in the room there is no need to have a separate committee!
• Agree among board members that you will each be responsible for speaking up when duplication is happening. Ongoing discussions about this ensure the board has a common understanding of delegation across the committees and the board.
   

4. Uneven performance / contribution of board member

For a board to be effective it has to:

1) Have the right people in the boardroom and;

2) Those people need to be focusing on the right things.

Despite efforts expended on the former, we are far from success. A recent McKinsey study found that 57% of directors felt at least one of their fellow directors should not be in the boardroom.

There are many aspects to this thorny, and personal issue, which we will cover in subsequent blogs, but in the meantime, here’s what can be done:

• The Chair should consider her or his observations and feedback from others on individual board members. If there is consistent, poor feedback on a director, the Chair must address it as a priority.
• Hold a discussion with your board about the expectations you have of each other, how much time you expect people to invest, what behaviours are expected in the boardroom and beyond, and what each person brings to the table. While the Nominations Committee will have some of this, it’s not always used by the full board to facilitate such candid discussions.
• If you are a director and have not had performance feedback from the Chair, ask for it. It should be regular and candid and can be done informally. An annual, more formalised review is also good practice.

(This will be revisited in a future blog, so watch this space...)

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