"From Good to Great: Leveraging Process Evaluations for Board Excellence"
Have you ever left a board meeting questioning how much value (if any) was created from the discussions? You are not alone.
Most boards do not have performance tracking and those that do have a basic understanding of the drivers of a great board. Boards are one of the few areas of an organization where performance metrics are often not well defined. The forthcoming information will help to demonstrate why a “good enough” board mentality creates a significant risk to shareholders and the organization. We will also provide easy-to-implement ideas that will increase the engagement and impact of your board by utilizing data from your board meetings.
We continuously ask Executives how their boards are performing and the most common response is “pretty good”. Upon deeper inquiry, this usually means that one or two of the board members add the bulk of the value and the rest of the board is questionable at best. We refer to this as the “good enough” board. Often the CEO, Owner, Chair, and Directors are aware the board is not meeting expectations but do not see it as dysfunctional enough to necessitate a fix - yet.
The issue with "good enough" boards is that they foster a culture of complacency rather than excellence. This can quickly lead to a board that hampers company performance due to a lack of understanding required to support management in identifying significant risks and opportunities. Eventually, these boards can contribute to the erosion of long-term shareholder value, which contradicts any board's mandate.
The concept of good enough boards was highlighted in a recent survey exploring how executives perceive board performance. PwC and The Conference Board conducted a survey of more than 600 public company C-suite executives to gain insight and understanding about board processes and how organizations can enhance their strategic contributions. Some of the key takeaways include;
Only 29% of Executives rate their board's overall performance as “excellent” or “good”
Only 10% of Executives rate the overall effectiveness of the board of directors as “excellent” while 15% rate their board's effectiveness as “poor”.
Only 16% of Executives felt the board understands their key business risks and opportunities “very well” while 27% responded “not very well” or “not at all”.
26% of Executives believe their company’s board members are “consistently unprepared for meetings”
41% of executives believe that more than two directors should be replaced and 34% feel at least two.
This data underscores that "good enough" boards have the potential to not only hinder performance but also negatively affect company performance.
Skeptical of the data? We suggest you ask some of your peers or executive team members how their boards perform and, more importantly, how they know. As of this writing, the Chairman and CEO of Boeing is “retiring” after 5+ years of underperformance and disastrous safety issues. Boeing is just one of the latest examples of a world-class company suffering the consequences of a "good enough" board.
We asked Ralph Ward, a recognized governance thought leader, author, and Founder of the BoardroomInsider.com for his thoughts on this.
“Subjective, “good enough” governance weakens the role of boards, yet has been the standard forever. Even when boards evaluate themselves on a “one to ten” scale, items like “effectiveness,” “participation,” and “knowledgeability” are no more scientific than high school class elections. The only real way to move beyond “good enough” boardrooms is to shape objective measures of board input, meeting and board structure, and member effectiveness. “You can’t improve what you can’t measure,” like most popular cliches, is popular precisely because it’s true.”
It is rare for companies or executives to excel with a good enough mentality. To further illustrate this point, imagine a world where "good enough" was used to describe a CEO or executive team. The concept quickly loses all credibility, which begs the question, "How has this become an acceptable standard for board performance?"
Why is this Happening?
At Boardology and Advisory Board Architects, we conduct board performance analyses on hundreds of boards and their meetings annually. What is often surprising is the difference in perspectives between the executives and the board members. In most cases, board members report a higher level of perceived value than their executive peers. The owners, chairs, and CEOs of companies are aware that their boards are not adding the value they expect, but they often don’t know how to address the issue.
In a survey we conducted with our existing clients who found themselves in this position in the past, we asked why they tolerated a good enough board for so long before making a change. There were many different reasons, with some of the common responses being:
"I didn’t realize boards could be more impactful."
"Our board is not great, but it is not dysfunctional."
"The board consists of friends of the owner/CEO, and we want to avoid having a difficult conversation."
Transforming a Good Enough Board
Part of the issue is the perception that the steps required to address board performance will be difficult to implement. Below are the five “easy to implement” steps to transform your board from good enough to High Impact. Management Teams and Boards may already be doing some aspect of these ideas informally but we are recommending a more systematic approach to this process.
Commit to Impact - Does the organization want an impactful board? It seems like an obvious answer but we are surprised at how often the actions of the board don’t match the stated objectives. Acknowledging the indispensable role of a high-impact board in steering the organization toward its strategic goals is not a difficult task.
Define Expectations - What does High Board Performance look like? Clearly articulate what is expected from each board member to ensure alignment with the organization's vision and objectives. This is not as hard as it seems and is quite exciting when you realize that you can have any help that is needed from the board.
Assess Performance - What are we going to measure to ensure the board is on the path to High Performance? Regularly evaluate board performance, focusing on processes and people impacting outcomes. A hint, it may not require individual board member evaluations. There is a need for consistent data to understand how the board and meetings are impacting the business.
Leverage Data - How are we going to analyze the data to develop helpful board insights? Utilize insights from board participation and other relevant data to identify areas for improvement.
Distribute Information - How are we going to distribute this information? If the outcomes from the data are not distributed then it becomes difficult to gain alignment on enhancements. Ensure that board members are well-informed and prepared for meetings to foster productive discussions.
As we have demonstrated, most of these steps are not difficult to execute. Analyzing board performance does not necessarily mean evaluating board members. Instead, focus on the processes that directly impact performance. A high-impact board can support management effectively, help the company reach its full potential, improve its reputation, and reduce the risk of legal and regulatory issues. Most importantly it will benefit shareholders.
Good enough boards rarely stay good for long. When board complacency becomes the standard board culture these boards tend to become a hindrance to company performance. However, by implementing these steps there is an increased probability that the board culture will change to one of continuously increasing engagement and impact on the business.
Generally, we find that board members are aware of issues or areas for improvement but lack the data to understand exactly what needs to be fixed. In many instances, there is a fear that the risk of addressing board performance outweighs the potential impact of doing so.
The good news is that this problem can be easily addressed by taking small steps and making gradual, rather than drastic, improvements.
If you are ready to take the first step toward improving the effectiveness of your boardroom, we are providing you with an easy way to start. This initial step will take less than ten minutes and will provide you with data on where your board stands today. This initial step will take less than ten minutes. Click here to access our free engagement analysis tool, the Boardology Board Benchmark Survey.