Unlike the ornamental Boards of yester-era, today’s board members meet longer, dig deeper, and demand better information. Their duties and obligations include acting in good faith, being sufficiently informed, and diligent oversight for strategy, risk, and compliance. They often understand the systemic and knowable risks, institute effective reporting protocols, and demand adequate compliance from the Executive.
Despite this progress, stakeholders continue to question or maybe challenge the Board’s ability. Can the board truly navigate the complexity and uncertainty of their firm’s ecosystems? Does the Board possess the absorptive capacity to steer the ship to new frontiers amidst a fast-changing landscape? Fulfilling all stakeholder expectations is not an easy ask!
The stakeholder doubts raise pertinent questions such as – whether the Boards are equipped and whether they are dynamic. Many readers would be surprised to know that a simple mechanism of Board evaluations, currently deployed half-heartedly, can trigger the most significant assurance to these doubts and make a difference in the dynamic capabilities of Corporate Boards.
14 countries representing about 50% of the world’s GDP have mandated that the ‘Company Boards’ evaluate themselves annually. The United States was the second country in the world (2003) where the NYSE stipulated Board Evaluations. Although a few progressive companies have begun to leverage the benign mandate, most others just tick the compliance box (✓) and miss the bus, every year.
Over the past five years, through our corporate governance research, interactions with directors, and 40+ Board Evaluations, we have evolved frameworks, approaches, and implementation mechanisms that help ensure that the Board Appraisal (an idea mooted in a 1950 article in HBR, which found acceptance through mandatory obligations 50 years later) can indeed become an uplifting exercise. Our insights have led to the discovery of a golden spiral that propels a Board into a higher orbit — from an aspiring Unicorn to an established Fortune 100 enterprise.
Besides calibrating the structure and composition, a well-executed board evaluation takes stock of a Board’s functioning mechanisms, oversight adequacy, and committees’ effectiveness. It generates leadership feedback for the Chair and peer feedback for each director. It also holds a mirror to reflect on boardroom culture & dynamics, productivity norms, and the relationship between the Board & Executive.
Progressively, the higher level of psychological safety and trust quotient lead to the more evolved Board routines, improved rubrics for decision-making, and new algorithms to navigate the VUCA world. Our experience has taught us that with 3-5 cycles of effective board evaluations, the board actions become more collaborative and a newfound respect surfaces for the cognitive conflicts. Sharpening the questions have led to better responses, conducting the evaluation strategically has helped companies discover learning opportunities for the Board, continuous improvements over the years has made believers out of non-believers –
“We all started as sceptics that this is just a cosmetic exercise. It started with spending as little time as possible …my opinions on Board Evaluation are changing.”
“ …we started having much deeper discussions on the quality of feedback we receive.”
“Clearly over the last 2-3 years, I can say that trust levels have significantly improved, as has transparency and communication.”
The cumulative impact is, the emergence/ strengthening of the dynamic capabilities enabling the Board to better equip the Executive in grappling with environmental shocks. Further, it mitigates the effects of authority bias, and groupthink, and neutralizes the power of dominant coalitions in the Boardroom.
To know more and access our resources and templates, write to: na*****@fi*********.com