Make sure your board isn't bored.
Updated: May 29, 2019
Richard Patterson - Partner
Recent events in corporate Australia continue to emphasise the importance of high performing boards for the sustained success of the companies they govern. Stakeholders and regulators all look to their boards to show strategic leadership and a passionate commitment to excellence, governance and ethical management.
But as the banking royal commission has so painfully and publicly shown, dry rot can creep in through negligence and a board’s performance needs to be diligently and regularly reviewed to maintain those commitment expectations.
So how should a board conduct an effective review?
Self-assessment is a quick and easy way to review a board’s performance and is commonly conducted via digital means such as apps and online surveys. Board members log on and answer a series of questions about individual and group performance of the board.
However, when PwC interviewed more than 700 top board directors for their Annual Corporate Directors Survey, the results showed that 63% of them merely checked the boxes on their self-evaluations without giving the questions much thought. And nearly 70% admitted they found it hard to be frank and objective in evaluating their board. Clearly there are always going to be issues around self-evaluation but the bigger issue with assessing a board via digital means is missing the non-verbal cues that are so important in interpreting human intent and behaviour.
An independent evaluation is a far more rigorous way of assessing a board’s performance – and it can also offer up so much more in the way of outcomes than a self-assessment process.
The first order of business for any assessment process is for the board members to check their egos at the door and agree to be as honest and objective as they can. The goal is to come away with results that are meaningful, manageable, and measurable. Then there are four main areas to assess: board structure, the board’s role in governance, board dynamics and functioning, financial reporting and auditing.
One of the softer measures in evaluating a board’s performance level lies in gauging the levels of ‘contributive dissent’ within their group. Contributive dissent allows board members to question with passion, throw an issue open, to ask questions of others and challenge them to re-examine their own point-of-view and think with more complexity. But what it does best of all is help put a stop to ‘group think’ – one of the reasons the banks’ boards are finding themselves in such hot water today.
A thorough board assessment also needs to present a way forward for the board to maintain (or regain) its ability to take the company forward. It needs to uncover the lay out the role the board will play in keeping its organisation sustainable. This requires deeper thought and more intensive work on the part of the facilitator. It requires understanding individual capabilities and galvanising board members with creative thinking methods. It entails knowing how to extract untapped potential from the rich seams of the members’ experience, strategic instincts and knowledge. And then it needs the addition of some secret sauce – working out how to channel all these human assets for the benefits of the companies they represent.
But even going into this depth around the board’s performance should not signify the end of the assessment. What happens after a board evaluation is an equally important part of a thorough and rigorous appraisal process.
There are no professional standards when it comes to evaluating and reporting on a board’s performance. In fact, there are wide variations in disclosing the results of board reviews - including not reporting at all. Regulators are now calling for listed companies to make it mandatory to undertake periodic formal evaluations and publish their methods and results.
In the current atmosphere of demands for increased transparency, this would equip all stakeholders – including staff, shareholders and customers - to hold their boards to account.
Australian boards need to challenge themselves more often on how they can perform better. Board assessments are part of that and so is a general tune up of attitudes within the boardroom. Business expects it and the companies they represent need it to sharpen their future direction and remain true to their commitments to excellence, management and ethical governance.