The Hallmarks of an Effective Board

It can take a number of years to build a fit for purpose board that has the leadership and dynamism to support the Executive Team.

The most important element in any governance structure is the Nominations Committee or Talent Acquisition Committee.  The main objective of this committee is to ensure that the Board has the horsepower to set the future direction for the business and to help it make the right decisions.  If this committee does not do its job, then the board and the organisation risks stagnating or just slowly dying for want of new ideas, constructive and independent challenge of each other and the Executive.  

The appointment of new board members should increase the share price if the company was listed.  New appointments should be strategic and not tactical. By this I mean they must bring a particular skills and experience to the party that will have a real and tangible impact at Board level.  This could include the world of digital, geo-political insight, capital raising, or a knowledge of a particular sector such as offshore life assurance. Ad hoc board appointments at short notice is not a good sign of good corporate governance.

So, assuming the board is populated with the right talent, what other measures can it take to improve its effectiveness. Here are a few examples.

  1. Conduct regular external board evaluations to get an external perspective on how effective the Board as a collective is doing. 
  2. Conduct 360 reviews of the directors.  This can have a very positive benefit in that each director provides a view to all the other directors on what their strengths are and specifically where they can improve.  
  3. The Board should assess annually the information that it is being provided with by the executive to make sure it can do its job.  Few organisations do this in our experience.
  4. The Board should have an annual workplan for the board and it’s committees.  This will help in setting the agendas for the year, but also it should also aim to ensure the board spends enough time on the future by delegating as much as possible to its committees.  A rule of thumb is that Boards should aim to spend on average 40% of their time on the future
  5. A Board should hold an Awayday at least once a year to reflect on its strategy in some depth and to focus on specific issues such as looming regulation or competition issues. It also should be used to get to know the executive better and to build trust in their capability.  The Awayday also provides an opportunity for the directors to get to know each other better.
  6. Invest in the capability of the Board through a well thought through professional development programme.  The Board Evaluation may well indicate what the directors might like, but they should be asked as well. Topics will depend by company, but the programme could focus on new regulation and compliance requirements, sustainability, diversity and inclusion etc.

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David W Duffy FCA is the Founder and CEO of the Governance Company and the author of “A Practical Guide to Corporate Governance” published by Chartered Accountants Ireland.

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