Cultivating high-performance boards

How fit is your board for the future? Do you conduct board evaluation externally or internally? A recent AICD webinar identified the features of high-performing boards across the spectrum of listed, private, government and not-for-profit sectors and the challenges they face.

A rapidly evolving governance landscape has meant boards face increasing pressure from a range of different stakeholders, regulatory bodies and increased societal expectations around governance, according to Sarah Graff, head of strategic accounts at BoardOutlook.

“With growing emphasis on transparency, sustainability and accountability, the role of the board has become more complex and more demanding for directors,” Graff told a recent AICD webinar.

“Effective governance is not just about oversight. It requires forward-thinking leadership and strategic insight to navigate risks in a fast-changing world. So board effectiveness is critical to ensuring long-term organisational success and resilience.”

A board evaluation is not something done only when a board feels it is in trouble. “It’s intended to improve effectiveness and keep the organisation out of trouble,” said Graff.

“The critical piece is that a board review needs to drive meaningful outcomes. It’s about making sure your board evaluation isn’t just ticking a box but putting your board on a continuous improvement journey.”

Looking forward

Dr John Harte FAICD, managing partner of Integrity Governance, said evaluation is not just about looking back. “It’s really looking forward and asking the question in terms of our board performance — how fit is the board for the future?”

A poll of webinar participants found 42 per cent of respondents use board self-managed evaluation and individual feedback, while 31 per cent said their board evaluation is externally facilitated. Twelve per cent of respondents said the board is getting no feedback and eight per cent said management is included for feedback.

“One of the challenges we have with the self-managed reviews is we all think we’re above-average drivers,” said Harte. “Sometimes, having someone come in and say, ‘Actually, you’re pretty good, but you could be better’, can be helpful. The good thing about external reviews is hopefully, whoever’s doing that external review is able to hold up a mirror to the board’s performance, give a sense of how they’re doing compared with other boards, and be able to do that from a position of being free of conflict of interest.”

He said the 12 per cent reporting no evaluation being done shows “an opportunity for improvement”.

Inviting management to be a part of the evaluation and review can have “tremendous benefits”, said Graff. “We really do think failing to include management in the process is a pretty good recipe for an ineffective review process. By including management in a board evaluation, we see opportunities for enhanced transparency and communication in terms of how it can foster open dialogue between board and management to improve overall communication throughout the organisation.

“If you have a board and management team misaligned on a key area like strategy or risk, and this misalignment isn’t surfaced and understood, the organisation is likely to have underlying issues that will exacerbate over time.”

Methods for success

High-performing boards are increasingly using technology to stay accountable on issues that matter most, said Graff. Tools such as time series data to measure board improvements and technology to ensure that data is both secure and accessible to the right sets of eyes are being employed more regularly.

Harte emphasised the importance of board composition — right people, right skills, culture, the board’s understanding of risk, risk appetite, the way they’re monitoring and mitigating risk. Also, are they actually behaving in a way that nurtures a culture that listens to feedback from the organisation? These are essential things to evaluate and monitor to ensure continuous improvement, he added.

The webinar poll established that 47 per cent of respondents did not have a board action plan, 42 per cent did and 11 per cent were “unsure”.

Harte noted a board action plan is a fundamental commitment that the board will respond to the findings of a review — and requires regular follow-up. If there is no responsibility or accountability for action, the subsequent credibility of reviews is brought into question.

“Prioritise the actions to deliver on the plan, rather than having a long shopping list of things that never get done,” suggested Harte.

Graff agreed, noting it would be negative for board morale and performance to have nothing change after a review. “A process that delivers a small number of completed actions is a meaningful step forward,” she said. “Even if you’re starting with the mindset of ‘what are three to five important things we need to do coming out of this review and making sure there’s accountability and completion on those’, that will be quite a meaningful step forward.”

Ensure that progress on all your actions can be tracked over time, she added, because you want to know when something is moving from exceptional to simply average, to get ahead of that issue before it becomes problematic.

Red flags

Harte said five red flags concern him when they became apparent. “Number one is when directors and CEOs see no value in reflecting on their individual or collective performance. They think they’re doing fine. That, to me, is a red flag. The second is when that board-chair relationship is either too close or too distant. The third red flag is a board the CEO wants, but not what the company needs, meaning the board is being curated by the CEO to avoid challenge.”

Harte said the fourth red flag is when actions are not followed up. “That’s a huge red flag. And the last red flag is when we’re all too comfortable, we’ve got a conflicted coterie of advisers, consultants, auditors and friendly mates who can never speak truth to power in an evaluation process.”

A framework built on the idea of a performance pyramid to help boards focus on those critical areas that will drive both short-term results and long-term value creation is one way forward, according to Graff.

“The bottom layer is your ethical and legal and compliance foundation,” she said. “The next layer is governance, structure and culture. Then you move to oversight, with more mature boards moving more actively to monitor things like strategy, execution and risk. Finally, you have value creation to drive strategic initiatives that help to create long-term value for the organisation and stakeholders.

Graff said that by adopting this structured approach, a board can more readily transition from compliance-focused activities to become a strategic, high-performing body that actively drives organisational growth and success.

A journey, not a destination

Good governance is a journey, not a destination, according to Marion Macleod FAICD, managing director at Core Management Solutions. A board evaluation is a tool to help directors set a path towards maturity and excellence, she told the webinar.

A board performs at its best when it’s part of continuous improvement and remains nimble to the changing environment. Reviewing current performance against a benchmark standard is an opportunity for building organisational resilience.

A board action plan builds board performance through individual and collective upskilling and is best when aligned to your organisational strategy. “A successful board leads the organisation by setting the heartbeat through continuous improvement of all their processes, tools, routines and experience, creating clarity of purpose and outcomes.”

She noted that a high-performing board is one that delivers the best decisions for the organisation’s long-term future and can be a great experience for all who serve on them.