Board effectiveness reviews:
What happens and what are the potential objectives and benefits
A review of board operation and dynamics is a significant investment in terms of both time and cost. It is also a process where the board opens itself up to feedback and to assessment, so this requires confidence and some courage from all individuals involved. From the perspective of the board reviewer, the process requires a balance of objectivity and sensitivity.
The objectives behind any board evaluation vary but can be grouped as follows:
- The requirements of the UK Corporate Governance Code and other codes. For some corporate boards the requirements of the Code, to hold an externally facilitated review every three years (or explain why it does not), is the sole driver of the process. In these cases, the objectives may simply be to ‘tick the box’ to ensure that the board is following the rules – nothing more.
- The requirements of the Code as an opportunity to develop the board. For other corporate boards the three-year external review can be an opportunity to address long-standing issues and for the board to step back and reflect on its performance, mapping a positive developmental path forward to enhance performance.
- A choice to assess the board against best practice. Many boards in other organisations may not be required to follow the requirements of a Corporate Governance Code, but they choose to do so as a mechanism to give confidence to stakeholders and shareholders that the board is operating to a recognised and effective standard.
Businesses in regulated sectors are under significant pressure from their regulators to address the issues in any resulting report, and this is increasingly the case for private and public shareholders who expect the review process to prompt action. At the Guild, the reviewers will not walk away from any of the three situations highlighted above, as they believe that any board can get value from the process whatever the initial objectives. They consider that the governance codes are an important framework and benchmark and that any board can improve its value to its business. They see fewer ‘box ticking’ attitudes and an increasingly positive attitude from boards to the review process – boards are more aware that this process can add significant value, and so are their stakeholders.
What happens in a board review?
It is the reviewer’s job to unearth the insights and provide recommendations that demonstrate the benefit of the review process to the board. Guild members believe that it is important for the reviewer to understand the starting point of the board, their business challenges, and to move the board forward from that point. There are risks at all stages of the process, from the initial engagement with the board to the delivery of results, not least the risk that the reviewer colludes with board members to ensure an agreeable outcome. If the reviewer doesn’t attempt to deeply understand the specific challenges of the board and its company then their recommendations will lack credibility. At the same time, poorly delivered criticism can have lasting impact on boardroom relationships. At the Guild, our Code of Practice makes our approach clear to all parties from the start. This ensures that reviewers will maintain objectivity, but also ensure that the board can have confidence that it is not our objective to ‘put a grenade under the boardroom table’.
Productive, honest interviews are conducted by reviewers who can listen hard and take a critical stance while putting their client at ease. A listening approach is essential – but not always the practice of all reviewers! Confidentiality is naturally a priority and an issue that should be addressed right at the start of the process. The interviews are followed by meeting observations. These are objective and non-invasive to ensure that the board and committees adopt normal habits and behaviours whilst being observed.
Effective interviews and observations require that the reviewers have the experience and the gravitas to engage the board members and with others. Delivering the results of the process can require considerable diplomatic skill – especially when there are unpalatable messages to communicate.
The best board evaluations deliver a workable and practical document including positive and negative insights that add real value to a board that wants to improve and to change. The report is a living document and not one that should simply be filed away. Members of the Guild believe that a successful review has allowed them to provide the board with the new insight and information they need – not simply the messages that some board members may have wanted at the start of the process.