Boards are under tremendous pressure in these volatile times as they try to juggle their future direction with oversight and accountability.

This poses the question – are boards up to the task in hand, fit for the future, and successfully able to seize opportunities for their organisation?

There are six pillars that enable boards to deliver true value:

1.       Role clarity

Role clarity is the heart of an effective board. While most directors are familiar with the need to adopt a ‘directors’ mindset’ and respect the separation of the roles of the owners, management and board, few directors are familiar with the big, multimillion-pound question which is how the board will steward the creation of value by the company. This is a far more challenging question that separates the wheat from the chaff. Those boards and directors that have clarity about how they will steward the creation of value and demonstrate this through their board and committee workplans, calendars, and be accountable for value creation in their board reviews, will be exemplars.

2.       Appropriate board composition

There’s near universal recognition that diverse boards are more effective than those lacking diversity. Therefore, the board needs to consider whether its current composition is the right one to take the organisation forward. They should look at their board through the prism of the five drivers of diversity™- demographics, skills, experience, thinking styles and circles of influence – and contemplate how well the current line up matches up. True board diversity is broader than any one of the five drivers™ and delivers wider perspectives, improved decision making and outcomes.

Beyond the five drivers of diversity™ there has to be an optimum number of directors, ideally from five to nine, with the appropriate balance of tenure – recently appointed to up to nine years – to help provide the right mix of foresight, insight, oversight and hindsight on the board. As for the chairman, they must someone who is able to deliver adaptable and agile leadership in a volatile world.  

3.       Effective board processes

Boards need effective processes in place to ensure good governance and engender long term growth. These include processes related to supporting decision making, reporting and disclosure. Other critical processes include stakeholder engagement, assurance, CEO and director specific activities.

Key board processes include:

• Performance reviews

Performance reviews of all on the board need to be facilitated to ensure they are fit to lead the organisation into the future. After the last torrid few years some governance processes, like regular reviews of those on the board, have been deferred. Now is the right time to make sure these reviews happen – at least annually.

This means delivering a 360-degree performance review for all on the board, one that provides an objective assessment. This involves qualitative and quantitative research via an online survey and interviews, either face to face, or on a videotelephony platform.

At the end of the review process there must be clarity on the next steps for the director, with deliverables agreed by all parties. These can then be revisited and evaluated throughout the year as necessary.

• Succession planning

Planning for the succession of the CEO, or any director, should take place at least once a year. However, for many boards the default option is ‘go to market’ and succession planning is not something they consider until time is not on their side, when the current director comes towards the planned end of their term, reaches retirement age or is no longer seen as the right person to help lead the company to future growth. This is a particular issue if it’s the CEO, as the business could potentially be without a clear leader, which could be disruptive to the organisation by impacting on business continuity.

• Board Induction

To ensure the new director gets up to speed as quickly as possible there should be a 12-24 month ‘journey of learning’ induction programme. This involves formal and bespoke governance training, so the new starter learns about liabilities, risks, financial competence, including how to be effective in board meetings. There should be a buddy system with an established director so the new board member can learn about previous decisions, and how things work. Also, there must be a programme of visits and experiences so the incoming director can really get under the skin of the organisation. At the conclusion of the induction the board should undertake ruthless feedback so the induction process can improve over time.

• Risk and strategy

Boards need to take risk seriously and not be blind to it. They must have the foresight to plan for risk objectively, have a culture of openness, challenge assumptions around risk and be able to adapt fast. This will ensure boards are well positioned to identify and turn any future risk to their commercial advantage, and secure the long term survival of their organisation.

Risk, strategy and return are the overlapping circles of a Venn diagram that boards must consider. The volatility and uncertainty of the post pandemic world have increased the need for effective, agile strategies that enable a company to deliver value. Boards have a critical role to input in to the  development, approval, challenge and monitoring of strategy.   

4.       Relationships

Of the six pillars of board effectiveness, relationships and culture – critical human factors – are too often ignored, particularly by those that take a legalistic or process orientated approach. Effective boards ensure that their relationships support their role in stewarding the creation of value. This is enabled by three fundamental currencies: ‘trust, respect and honesty’.

The most important relationship in the governance system is between the CEO and the chairman, and in our experience one or the other will leave if this critical relationship is dysfunctional. However, the board must always look at the spectrum of its relationships and ensure relationships with management, between those on the board, with the company secretary and, in particular, with key stakeholders are effective and enable the success of the organisation.

5.       Culture

Effective boards recognise their responsibility as custodians of culture – keeping, protecting and nurturing the good things, the ‘assets’, in company culture, as well as shaping the culture to remove the harmful or less valuable elements. They also have the awareness to address where the culture is not appropriate and must change for the business to be ‘fit for the future’. Importantly, these boards enact their role in culture by inspiring it, ensuring alignment, demonstrating authenticity by both reflecting and demonstrating the behaviours implicit in the culture, while guiding, encouraging and assuring themselves about it.

6. Board dynamics

It is important to recognise that it’s the dynamics of the board – the way they interact and the way that power manifests in the social and legal system that is the construct of governance – that has an enabling or constraining impact on how effectively the board operates and how well people perform within that system.

The board has to be viewed as a system, with directors having an understanding of the rules within it. For example, they need to know if there is a hierarchy of directors and where the power lies.

Ideally, all boards must have a culture that’s focused on delivering positive board relationships to help engender an effective board dynamic.

In Summary

In today’s challenging economic climate organisations demand effective, high-performing boards and individual directors. Those boards that are weak in any one of the six drivers of board effectiveness will struggle. They will endanger the future long term success and prosperity of the companies they lead.

It is time for boards to urgently consider these six factors if they are serious about not only surviving but thriving in these tumultuous times.