What makes effective boards? How big should the board be? These and other questions are answered in this detailed look at managing board performance.
Since the performance of a board is primarily judged on decisions made at meetings, effective boards are those that prepare for and run meetings well. The bulk of this article is therefore focused around meetings - before, during and after. In other words, what happens outside the meeting clearly affects what happens in the meeting itself in such terms as knowledge and experience - and enthusiasm to increase these for the good of the organisation.
Preparing for Meetings
The first step in achieving effective boards is proper preparation for the meetings. A last minute rush to prepare board papers results in directors receiving board packs with inadequate time to prepare for the meeting. This is the recipe for an unsatisfactory meeting. The key to good organisation is usually the Company Secretary.
Role of the Company Secretary
A good Company Secretary will ensure that the Agenda is agreed with the Chairman well in advance of the meeting. He will chase the key executives to deliver their reports in good time for assembly into a Board Pack. Thus the Finance Director will have the accounts completed in good time, with full explanations of variations from budget etc.. The Marketing and Sales directors will have their reports ready and the directors responsible for Production and Operations similarly. All important aspects of Human Resources will be covered, with Health and Safety reporting fully complied with and no loose ends to be tied up. If the Board sub-committees, such as Audit, Remuneration and Nominations have to submit reports, they will ensure that they have had their meetings in good time before the Board meeting to be able to report accordingly. All this is the responsibility of the Company Secretary. Poor performance here will have a disastrous knock-on effect on the performance of the Board.
The quid pro quo of an efficient delivery of board papers to the board members is that the directors must give them their proper attention. Clearly, the depth of knowledge in a particular area of the business lies with the executives concerned. However, the directors are duty bound to ensure that they have as good an understanding of the matters involved as is necessary for them to be able to carry out their fiduciary obligations. Hence they must own up to any lack of understanding and they must express their views clearly and without fear or favour. The days of getting away with reading the board papers on the journey to the meeting have long since gone. The conduct of directors is now a matter of public scrutiny in the event of a business getting into trouble, so the need for effective boards is ever greater.
Use of modern systems
Fortunately today there are systems available which make the Company Secretary’s job easier in delivering Board Packs to directors and enabling directors to brief themselves properly in advance of meetings. Web-based systems which provide secure access to board information enable the Secretary to provide directors with electronic access to the latest version of all the key board information at the touch of a button. Similarly, directors don’t have to open up a succession of emails with a string of bulky attachments. Instead they receive an electronic “prompt” alerting them to the posting of information on a secure website which they can access wherever in the world they happen to be. The most effective boards are now using such systems or have plans to do so.
Managing the Meetings
The most important element in effective management of meetings, and so effective boards, is almost certainly the chairman. His or her performance can ensure productive, enjoyable meetings or guarantee dysfunctional gatherings which can endanger a company’s future.
Role of the Chairman
The chairman’s role has been written about at length. Suffice it to say here that the chairman has to ensure that the Agenda is appropriate and covers all the important items of the moment. The meeting itself should not be concerned with briefing directors but key supporting information must be made available to directors in advance of the meeting to enable decisions to be made at the meeting itself, and for policy discussions to be productive. Responsibility for keeping to these rules lies with the chairman.
Keeping to the Agenda and timetable
One of the most reliable ways to destroy effectiveness in meetings is to allow directors to depart from the Agenda. If an issue is raised which is sufficiently serious to warrant making time to discuss it, the catch-all item “Any Other Business” is the place, at the end of the meeting. Similarly, it is important to keep to the planned timetable. Meetings which are allowed to drag on well past their planned timings lose the attention of members and sometimes their physical presence too. The chairman’s role here is critical, to keep control of progress through the Agenda while ensuring that genuinely useful contributions are not stifled.
Behaviour of Directors
To make an effective contribution, directors should arrive at meetings fully briefed. They should try to raise matters of concern before the meeting so as much relevant information as possible can be aired before the meetings to prevent lengthy presentation and explanation of information during the meeting itself. They should exercise self-control in their interventions to avoid monopolising discussions and requiring the chairman to cut them off to give other directors an opportunity to contribute. At the same time, they must remember their fiduciary duty to express their strongly felt concerns and not allow themselves to be bullied into silent acquiescence.
Use of technology
Increasingly, companies are making use of tablet technology (especially iPads) to enable directors to bring their board papers with them to meetings in electronic form, along with notes they may have made against items in the board papers, leading to much more effective board meetings. A more fundamental development which will emerge soon is the ability for board meetings to access key backing information through web technology, bypassing the constraints of pre-packaged board papers. Hence constitutional issues could be considered by accessing the Company Secretary’s files during a board meeting allowing real-time briefing and expediting decision-making. Similarly, discussion of important trading issues could be informed by real-time access to the web to answer important questions regarding markets.
Following up Action Points
Something to be watched is a tendency of meetings to focus on “Matters Arising” when considering Minutes of the Last Meeting”. This item often addresses actions denoted in the minutes and attempts to find out whether the persons tasked with carrying out the actions have in fact done so. Clearly, the Board Meeting is not the place for this investigation as the actions should have been checked out before the meeting – indeed at the point when they were supposed to have been completed. This falls into the Company Secretary’s area of responsibility, and a well organised company will have processes in place to track such actions and responsibilities for executing them. Effective Boards will only consider the results of the actions, if appropriate.
Use of systems
Technology can provide the Company Secretary, and indeed the Board, with an automated check on follow-up actions. Work flow systems exist which can be linked to the Minutes to provide prompts for the individuals tasked with undertaking the specified actions and offering an up-to-date status report for the Company Secretary well in advance of the next Board Meeting.
Between Board Meetings
It should not be assumed that directors’ involvement with a company is limited to the time spent around the four to six meetings they may be scheduled to attend during the average year. A conscientious director will keep him/herself briefed about the company and the markets in which it is operating. If all directors were to adopt this attitude, truly effective boards would be the norm, not the exception.
Executive briefings for directors
The executives should be constantly looking at opportunities to keep the directors up to date with key aspects of the company’s health and well-being. This should be geared to the corporate goals which the company has agreed, and particularly this should cover the market in which the company is operating. Regular briefing notes will do more than anything else to enable directors to keep abreast of the company’s progress and help them participate knowledgeably in board meetings when the company’s trading position is discussed.
Directors’ personal efforts
Directors themselves should remember that they are responsible 365 days a year to shareholders and other stakeholders. They should be constantly looking to inform themselves and watch for threats to the company’s health and opportunities to advance its interests.
Use of technology
Fortunately, again, technology can come to the aid of the conscientious director. Not only does the internet provide a virtually limitless source of information to inform and guide the director, but the well-organised company management can provide on-line briefings to keep its directors up to speed on key developments between meetings. Hence directors can keep close to the company even if they are physically far apart from it – there is now no reason why geographically disperse boards cannot be effective boards.
It is not only good practice, but now indeed a regulatory requirement for leading companies that the performance of directors is regularly monitored – such is the concern of regulators to try to ensure more effective boards. However, there are several aspects to good performance for a board of directors.
Achieving a well-balanced board
In years past it was deemed sensible to sprinkle a board with members of the “great and good”. Nowadays it is recognised that effective boards are achieved much more through “balance”. That is, they contains the mix of skills and experience appropriate to achieving the corporate goals adopted in the corporate strategy. This includes not only background but the interpersonal skills needed to ensure that the board functions well. Serious personality clashes between strong-willed directors contributes to a significantly dysfunctional board, and the chairman must take steps to avoid this, or remedy it if it arises.
Size of the Board
How big are effective boards? There are many factors contributing to the answer to this question. These include:
Periodically it will be necessary to bring new directors on to the board. Handling this process properly is part of what effective board management is all about.
Clearly, no director or chairman can stay on the board for ever, so it is important, in maintaining effective boards, to have a suitable process in place for succession planning. “Independence” in a director is, these days, defined by regulatory guidelines. Hence when a director is approaching the point when his or her tenure is so long that they are no longer deemed to be independent, a recruitment process needs to be in place to prepare for their replacement.
It may be that a company is planning on investing in a relatively new field or unfamiliar geographical market. This may call on new skills or experience and in this case it may be desirable for the board to be strengthened by recruiting a person with the necessary background.
The selection of a new director requires all the usual processes including job definition and person specification. No longer is it appropriate simply to recruit a friend of the chairman.
Briefing and induction
Finally, it is very important that new directors are given a thorough briefing on the company whose board they have joined and its goals and strategy for achieving them but also a clear definition of the role they are expected to play.
We hope you found this article useful; we will shortly be opening up the site for submissions and would welcome your thoughts and experience on effective boards, the factors affecting effectiveness and the tools available to achieve this.