The First Hundred Evaluations
Since BEL was set up in 2010 we have completed just under a hundred board evaluation assignments. The exact nature of the assignments has varied and the clients we have worked with cover a very broad range; everything from large multi-national corporates, through government bodies to small not-for-profit organisations.
The challenges have been demanding but always interesting and along the way we have made some significant learnings. Some of the key lessons we have learnt are, in no specific order of preference or priority, listed below.
- No two assignments are the same: clients are all very different even those that, on the face of it, appear similar. Even those clients where we are invited back will have experienced changing circumstances; companies change, their economic environment, legal jurisdiction and regulatory requirements all change. The lesson here is that our work programme, our assessment of findings and our guidance and recommendations all need to change to properly reflect the changing circumstances of the client. There is no such thing as a standard board effectiveness review; every assignment has to be tailored to meet the client’s objectives in the current environment.
- Effective Chair: this might be an obvious one but boards perform better when they are chaired effectively. Being an effective Chair, however, does not mean being dominant or leading on boardroom discussions; in fact, it’s quite the opposite. Good Chairs will follow the Agenda, introduce topics, ensure everyone has input to discussions, summarise and then seek a decision or an agreed way forward. The Chair’s role is to manage the Board not dominate it.
- Effective Company Secretary: this is another key role and one that has developed in recent years. The role of the Company Secretary has moved from being legal counsel to the owner of governance; this is a far broader role and one that requires great organisational skill in addition to the legal and regulatory knowledge that is fundamental to the role.
- Good iNEDs: regardless of the size of the business, boards can get real value from Independent NED members. iNEDS must be carefully selected but good ones will provide their board with advice, guidance and contacts. Importantly, they will challenge executives and won’t be ‘fobbed-off’ if they think plans haven’t been thought through properly or mistakes are about to be made.
- Diversity: board composition is hugely important and there is clear evidence that diversity improves board effectiveness. When we look at diversity, though, we are thinking about diversity of thought, personality, working style and cognitive thinking style. This will probably mean having good gender, ethnic and age representation but it is important not to get distracted by pressure group agendas. When recruiting, training and promoting particularly at Board level, make sure you are acting without discrimination and you should end up with a diverse board and workforce; the best talent generating the best outcomes.
- A good agenda aids board effectiveness: the humble board meeting agenda is often overlooked but a focussed, well-planned agenda leads to good meeting-discipline and ensures concentration on the important boardroom issues. Too many boards waste time on minutiae rather that the big issues such as strategy, risk management and the control environment. There are certain key features that an agenda requires but if these are met, agenda items can be prioritised, timed and the agenda becomes an invaluable aid to the Chair during the meeting and to all board members when they are preparing for meetings.
- Good governance documentation: many board members consider governance documentation to be too bureaucratic and we would agree that, if not dealt with correctly it can be. There is, though, much evidence to demonstrate that documentation that is well-written, relevant and proportional will enhance board performance. The key documents and minimum requirements are a board manual (setting out responsibilities, mandates, delegated authorities, decision making protocols etc), board member job descriptions, meeting minutes (including clearly documented actions), board policies and a governance calendar (to be produced well in advance of the year to which it relates so that board members and attendees can ensure their availability is not compromised).
- Pleasant work environment: it is important for board meeting rooms to be big enough, well-appointed and the provision for basic facilities (e.g. washrooms, tea/coffee/water, presentation equipment) must be good enough to facilitate a comfortable working environment. We attend many board meetings and too often these are held in spaces that are too small, not well-lit, badly heated or cooled and facilities are poor or non-existent; such environments are not conducive to maintaining the attention and interest of a group of individuals for, what is often, many hours.
- Good working relationships: in our experience it is usually the case that the best performing boards are those where good working relationships exist between board members and, in particular, between NEDs and executives and between directors and management. These relationships cannot be built in the boardroom alone, the extent of off-line interaction is important. This might include social events, pre- or post-meeting dinners, regular telephone conversations, off-site events (usually for specific matters, e.g. strategy review or ‘deep dive’ sessions) and video conference calls.
- Board communication: it’s always good to talk and this applies on so many levels for boards. Interestingly, though, we have found that boards and individual board members (particularly NEDs) often don’t fully understand the extent of communication that is expected of them. Communication is usually seen to be the responsibility of executive directors and often just the CEO or, maybe, the Sales Director and the importance of all board members and the board as a group communicating with stakeholders is over-looked. As with most things, this must be done sensibly and there needs to be a high degree of planning and co-ordination but it is important because it facilitates two-way communication, it prevents messages (in either direction) getting distorted by interpretation or bias and it promotes better understanding.
- The learning board: no one ever ‘knows it all’ and, given the extent of change we see in the world today, this definitely goes for directors and the boards they sit on. The best boards have a framework of continuing board/director development. Typically, this is not about technical training (although this shouldn’t be over-looked) but developing the understanding of the business, the sector in which it operates and its legal and regulatory framework.
- The importance of committees: board agendas can get very full and sometimes important issues can get over-looked because there is not enough time and the time that is available gets used up in the consideration of non-critical operational matters. This is where committees can add real value to the effectiveness of the main board. They provide the time and space and the opportunity for experts/specialists to attend, to go into great detail about operational or routine matters that just cannot be spared in board meetings.
- Alignment with a governance code: all but the largest organisations do not have to comply with a governance code but there can be real value in using the provisions of a code to ensure a best practice governance structure is in place. Others are available and might be more relevant but the UK Code of Corporate Governance (the Code) is a good reference document for all organisations. The Code sets out the key features of an effective governance structure and, along with its companion document, Guidance on Board Effectiveness, sets out best practice across all aspects of a board’s responsibilities. So, even if you don’t have to comply with a code, use the Code as a benchmark against which to measure your effectiveness.
- The favourite gripes: poor reporting, not enough time at board meetings and fellow board members (too noisy/too quiet) these are amongst the ‘issues’ that are regularly raised during our assignments. Whilst these can be real issues, when we carry out our assessment we do need be objective about such complaints. The reason is that different individuals have different expectations and these can often conflict with those of their colleagues. So, for example, a reporting pack that works well for one board member might to another be too light on detail or not contain enough financial analysis; when the requirements of all board members are taken into account the permutations of requirements become unmanageable. So, the result is always going to be a compromise. Our job, whatever aspect of the governance framework we are looking at and regardless of the views of individual board members, is to make sure the board is established, operated and supported in a manner that enables it to be effective.
- Finally, make sure you get good value from your board effectiveness review: too often we see boards carry out an effectiveness review with the sole aim of ‘ticking a regulatory box’ or improving the credibility of the organisation. You might argue that this makes it a worthwhile exercise but we see this as a missed opportunity. Even a ‘tick box’ exercise costs money and consumes resource so if you are going to invest why not do it in a manner that will enable you to optimise the benefits. We could go into far greater detail on this point but, put simply, when carrying out an effectiveness review (internal or independent), make sure all board members engage, review the findings, agree an action plan and track the implementation of agreed actions and you won’t go too far wrong!!
Refocussing the business
A successful service company found itself in difficulty when the marketplace it operated in changed, reducing the profit margin to an unacceptably low level. Administration looked a real possibility.
The investors, however, felt that the company was delivering an essential service and agreed to make a significant investment, hoping that it could be saved. It was acknowledged, however, that the future of the company remained in doubt.
The existing FD became the CEO and a number of new recruits joined to head up the various Divisions. Directors of the company who were retained were rewarded by becoming main Board Directors giving them the ability to shape and veto Board decisions.
The turnaround was very successful and grew significantly over the next three years. As it grew the company established a Divisional Structure. This required new governance arrangements and a need to formalise accountabilities rather than have everyone involved in all significant decisions.
The notion of delegated authority among the Directors was an alien concept. Individuals felt that if they were not directly involved in the decision-making process, they need not sign up to the decisions reached by their colleagues.
Board Evaluation was commissioned to work with the company to address the decision-making process, to review the structure, and to establish governance arrangements so that the accountabilities and decision-making authorities were clear and embedded. A range of tools and techniques were introduced so that this could be achieved. The work was seen as the catalyst for change that put the company on a sustainable footing.
A number of workshops were arranged to refocus the business.
- As a consequence of the near failure of the business, behaviour among the Senior Executive had become rather fraught and dysfunctional. This was addressed by the consultant working with each individual to identify the issues giving rise to the hostile environment. Further work with the group resulted in a written Code of Behaviour that could be used as a reference point by the Senior Executive and cascaded for use throughout the organisation.
- Work was done at an individual level to understand their strengths and development needs. Sharing the aggregate data allowed the group to reassess the existing relationships and to begin the process of building a greater trust and confidence in each other. This work also allowed for an accelerated integration of new members into the group.
- The Board and Senior Executive worked together to create a statement of purpose that would guide future business development. The statement was constructed once the group had agreed how the success of the business would be judged by key stakeholders; what had to be delivered to secure that success; what needed to be put in place to enable the organisation to support the business. This clarity gave the Board and Senior Executive a much greater understanding of how the business needed to operate in future.
- The rapid growth of the business made the existing structure and governance arrangements unnecessarily cumbersome. The fragmented structure was streamlined creating a small Corporate Division to support the delivery arms of the business. By restructuring the company, the roles, responsibility and authority of each Director became clear.
- An authority matrix was developed which provided a basis on which the Executive Directors could build a greater trust in colleagues; that they no longer felt the need to be directly involved in every decision. This reduced many tensions and created a more positive environment.
As a result of the work with Board Evaluation, the Board and Senior Executive of the service company are re-focussed the re-energised, and the individual relationships more professional and constructive. Senior Executives have the authority and discretion to manage their individual Divisions and understand how they contribute to the overall success of the organisation. The Board and CEO are now confident that the business is more secure.
Case Study number 2
Complying with the Code(sort of)but not with the spirit
We were approached to conduct a Board Evaluation for this large listed company. It is a growing business, financially very successful and, thus far, loved by investors.
Despite our suggestions to have something more comprehensive, all they wanted was to get the directors to fill in our governance questionnaire with a presentation to the Board on the findings.
Two out of seven directors did not complete the questionnaire due to time pressures. Despite our reluctance to go ahead the company still wanted to hear our views on the findings.
On the face of it, the Board and the company seemed to comply with all the requirements of the UK Corporate Governance Code. We were, though, uncomfortable at the newly appointed Senior Independent Director and Chairman of the Audit Committee whose impeccable CV showed that he had just retired as Senior Audit Partner of one of the Big Four Audit firms who were also the external auditors. He personally was not involved in the audit though. But nevertheless!
The findings of all the questionnaires did not raise any significant alarm bells although we highlighted a few areas where some improvements (and actions)were required.
The meeting itself:
- Our allocated one hour was reduced to 35 minutes due to their meeting overrunning.
- The MD and two of the Non-Executive Directors sat on their tablets throughout our presentation with no contribution or reaction
- It essentially became a conversation with the outgoing Chairman and the Chief Finance Officer(CFO)
- Succession planning did not seem to feature too prominently on the agenda and we did not get any satisfactory answers about the role and strategic positioning of HR
- When asked if the voice of technology was being heard at Board level the answer was “We have just appointed a new Director of Technology, who will not sit on the main Board” We had to respectfully reply that this was not the question posed.
- Our recommendation to come back in a few months (at no extra costs)to follow up on recommendations was not taken up
- When we raised the issue of the newly appointed SID (see above)it raised a wry smile from some of the Board members with a slightly dismissive response from some of them.
- This was a classic case of a Board not taking the evaluation seriously and viewing this as a regulatory “tick box” exercise(no more)
- Such a review is meant to improve the effectiveness of the Board
- The Board seemed to think that a continued stellar financial performance and a good share price performance can excuse bad behaviour and a lack of respect for a good governance regime
- We signed off by saying that a robust and rigorous Board evaluation this was not and that we would have to vet any such mention in their Annual Report.