05 Jan 2015
Maximizing Board Effectiveness
Subscribe to our newsletter. Enter your details below.
Setting the Right Agenda
How do Boards cope with increasingly complex and time consuming responsibilities?
Whether public, private, government, or not-for-profit, Board governance best practices mitigate risk and prepare your organization for growth and adaptability in a rapidly changing and global environment. With so much information to process, in so little time, Boards must prioritize their efforts and actions around their fundamental governance responsibilities. To manage this challenge it is important to identify the fundamental components and determine the critical questions to be answered. We suggest that this is best accomplished by focusing on three key areas: Oversight, Composition, and Performance.
Oversight: “We review strategy and risk, but are we considering emerging risk?”
Of the many oversight responsibilities, including monitoring the performance of the CEO, strategy and risk are among the most important.
Boards must go beyond the basic requirements of oversight to engage best practices in strategic planning and risk management. By establishing frameworks and working collaboratively with management to understand the impact of rapid change in technology, sustainability, and the global competitive landscape, Boards help to galvanize their organizations against impending risk and provide a solid foundation for success. A recent PwC study concluded that only 25 percent of S&P 500 Boards have had discussions about sustainability and climate change. Discussions around emerging trends and global issues are paramount in being adaptable and responsive to current and future needs and risk.
Composition: “We review Director succession annually, but are we considering diversity and Director competencies in a meaningful way?”
No organization operates in a vacuum. Board diversity makes good business sense. The challenges and opportunities faced by organizations are increasingly complex and broad in scope. A variety of experience, backgrounds, and competencies are important to drive organizational resilience and provide a robust mechanism to anticipate risk and maximize growth. The 2013 OSC consultation process on Board diversity found that the majority of surveyed stakeholders believe that strategic Board renewal contributes to organizational effectiveness. Boards need to establish meaningful diversity objectives and a process to achieve their goals.
Performance: “We invest time in the Director evaluation process, but are we maximizing our efforts?”
Meaningful and ongoing assessment of Director performance, engagement, and effectiveness is key to creating the right environment for Directors to fulfill their fiduciary responsibilities. A 2013 McKinsey global study of 700 Directors found Boards that focus their activities on mission critical issues have higher levels of Director engagement and organizational impact. A comprehensive annual evaluation process offers the Chair and Directors a unique opportunity to collect feedback on the importance of issues considered, individual Director contribution, and the ultimate impact achieved.
While every Board presents unique challenges and complexity, best governance practices are a safeguard and support organizational health. Boards that prioritize sound oversight, diverse composition, and rigorous performance evaluation are best positioned to weather the storms of increasingly unpredictable markets and funding landscapes, charting a course for your executive team to achieve strategic goals and mandates.