Is your Board performing at an acceptable level?
Organisations measure the performance of employees, but do they measure the performance of Directors?
Is your Board performing at an acceptable Level?
Organisations measure the performance of employees, but do they measure the performance of Directors? Directors have roles and responsibilities to their organisations, their stakeholders and their communities. Does your organisation measure the directors’ performance? If you answered Yes, excellent. How often?
If No, then have you ever thought about measuring the Board’s performance? If not, then maybe it is about time to do so. Whether elected or appointed, all directors share the same level of responsibility regardless of the size and value of the organisation. And as mentioned in previous publications of mine, the responsibilities are similar for ‘For Profit’ and ‘For Purpose’ (not-for-profit) companies, Incorporated Associations and Co-operatives. Partnership is somewhat different however, there are still commonalities across corporate structures.
What are the Board Performance measurement options?
There are a number of commercially available options lead by -
X Australian Institute of Company Directors (AICD) who offer the AICD Board Evaluation and Director Appraisal Tool which focuses on evaluating larger publicly listed companies board and directors, or the AICD Board Insights which is a subscription based model that provides an industry sector benchmarking tool;
X The Institute of Community Directors Australia (ICDA) who offer both a self-assessment tool, with a structured questionnaire for directors to complete, or a 360-degree review option, utilising feedback from key stakeholders like staff, eternal experts and key executives, and a facilitated option utilising an external governance facilitator;
X Independent Governance Programs or Consultants who offer a range of assessment services based either on a Board Management program like BoardPro or Diligent, or a dedicated consultancy like Board Benchmarking, who provide solutions tailored to the size and type of organisation.
Why measure Board Performance?
As I mentioned at the outset, we measure the performance of employees, even manufacturing plant and equipment, to ensure our organisations are performing at optimal levels. So, it behoves organisations to ensure that the ultimate head of the organisation is operating in ‘good faith, proper purpose and in the best interests’ of the organisation and its stakeholders.
The Board sets the strategic direction of the organisation, is responsible for governance and operational oversight and to do so, must be operating as an effective, functional team. Is there discourse in board meetings, where respectful friction can enhance the quality of decision making? Is there sufficient diversity of knowledge, skill, gender, age and ethnicity in the board, again adding to the diverse views expressed during decision making? Are all directors active participants in each meeting and does the Chair moderate discussions effectively, ensuring equal opportunity to comment and discuss?
What should be measured?
Following AICD guidance, which is relevant to both For Profit and For Purpose (not-for-profit) organisations, the following key areas should be reviewed, pending the size and structure of your organisation and board:
X Board Composition & Diversity: Skills matrix, independence ratios, director diversity, professional development and tenure balance (guiding succession planning);
X Meeting Effectiveness: Quality of board papers, time management, decision making and contemporaneous minutes;
X Strategic Oversight: Setting and reviewing alignment with long-term goals, setting the risk appetite and culture, and performance tracking;
X Board Culture & Dynamics: Trust, constructive challenge, chair leadership, and chair-CEO alignment.
To these foundational areas, I would add:
X Board Confidentiality: Ensuring confidential management of board issues, management of conflicts of interest and maintenance of a Register of Disclosures (Conflicts);
X Financial Oversight: Sufficient financial literacy to monitor corporate finances, understanding cashflows, profit and loss and balance sheets, ensuring ongoing solvency;
X Compliance: Ensuring the corporation is compliant with all legislative requirements for its industry or sector, including any and all reporting requirements including, but not limited to, disclosures for listed entities, routine reporting of financials and providing transparent and accurate Environmental, Social and Governance (ESG) reports.
Many organisations can be cautious, even fearful, of board performance evaluations, worried that it is a ‘witch hunt’ to identify underperforming directors and remove them from the board. To the contrary, think of this like a motor vehicle service – a regular check up to make sure your car is operating safely and efficiently – so too is this assessment a check on the operations of the board and its incumbent directors.
Not a witch hunt, rather a
benchmarking process to see where performance is up to expectations, where there may be some shortfalls to address (with education or external assistance) and where performance is exceeding expectations to the benefit of the organisation.
As a simple start point, every board should complete a Diversity/Skills Matrix, to identify the mix of knowledge, skills and diversity currently on the board. This will assist in identifying what traits may need to be replaced when a director steps off the board, or what traits to look for when recruiting the next individual or group of directors. This matrix will also assist in identifying areas for professional development of the whole board, for example most boards today would benefit from learning more about Artificial Intelligence (AI) and how to best govern its use in their organisation, small or large.
The cost of doing a Board Performance Assessment can range from utilising a free tool, to spending up to tens of thousands of dollars with professional external consultants. Whatever it is, the cost of not assessing board performance can potentially be far greater, in terms of less than optimal governance from the key leaders of any organisation.
For more information or assistance on initiating a Board Performance Review, contact Ron Browne, Managing Consultant ron@extrapreneurservices.com.au 0414 633 423.
