How to improve your board’s performance — and why you should bother

It does seem as though a board’s performance correlates with the organisation’s financial performance — not forgetting overall performance, as the Zondo state capture commission has so graphically illustrated.

Global research in 2018 by McKinsey & Co suggests there is a correlation between board performance and directors’ effectiveness at core board activities, and that this correlates directly with financial outperformance relative to peers.

Just one of the findings says it all: “Nearly 60% of directors at boards in the top quartile for effectiveness say their respective organisations have significantly outperformed peers.” Fast forward four years and we have the Zondo commission’s reports, which set out the consequences of poor board performance.

It is therefore quite logical that organisations and their boards should focus on improving board performance. Based on the research from McKinsey as well as research by management consultancy Russell Reynolds Associates, there are a number of areas associated with top-quartile board performance. These areas complement the board’s traditional oversight role and show just how much the board’s remit has expanded.

• Strategy implementation and monitoring: high-performing boards are 10% more likely to list strategic planning or review as a top agenda item. While the management team leads the formulation of strategy, boards have a real responsibility to monitor it as strategies typically fail not because they are flawed but because they are poorly implemented.
• Monitoring of financial, legal and ethical performance: boards’ monitoring role must extend to the financial, legal and ethical areas — detecting early warning signals before they become big problems is vital. Directors must also spend time agreeing on what measures they will use and must ensure they get information from multiple sources.
• Nurturing the CEO and executive team: CEOs are vital drivers of an organisation’s performance, and nobody is better placed than the board — particularly the chair, who should act as a mentor to the CEO — to guide the CEOs development. By the same token, overseeing the development of top executives is also important. Boards have a responsibility to ensure succession plans for the top management are in place and reviewed regularly. Top boards are 6% more likely to list CEO and management succession planning as focus areas.
• Risk planning: top-performing boards engage in reviewing enterprise risks, but it is not clear whether directors who sit on the risk committee have the appropriate expert knowledge. The risk landscape is constantly shifting both in line with geopolitical events and also industry/business model changes, often driven by technology. The close companion of risk is crisis management, and here too top-performing boards are more likely to engage in crisis management planning.
• Seeing the board as a whole: the McKinsey research shows that while boards generally have good dynamics these days, many still struggle to establish good board processes. These include the chair running the meeting efficiently and effectively, regular formal evaluations, appropriate induction and training for new directors, ongoing opportunities for board members’ development and training, and a long-term succession plan for the board as a whole.

Boards should also take a broad view of how they operate. Important issues to consider include whether there are enough independents and whether the board as a whole has the requisite mix of skills. Board size is also an issue — having the right mix of skills has to be balanced against not having too unwieldy a board.

Most important of all, the board needs to accept that meeting attendance is no longer enough given the board’s expanding role. Is enough being done to ensure everybody speaks up, that alternate sources of intelligence are identified, and that the independents are given an opportunity to meet without executives being present?

Evaluation is a critical tool to help governing bodies become more effective. Boards should ensure they commission a regular, independent evaluation of their performance, and put processes in place to act on the results. Salient details of the evaluation need to be included in the integrated report.

The King IV Report on Corporate Governance makes it clear that the governing body is the apex of the governance structure and, as the Zondo commission showed, lack of governance has catastrophic consequences. Putting in the work to make sure your board performs well is now a big responsibility.

• Natesan is CEO and Du Plessis facilitator at the Institute of Directors SA.