Effective and Ineffective Boards

In his article published in the Harvard Business Review What Makes Great Boards Great Jeffrey A. Sonnenfeld states that, even in high profile cases where companies have failed, many so called ‘governance experts’ who try to analyse the reasons for the failure tend to focus on problems related to the age or skills or independence of directors, or the overall board size and number of its committees.

Sonnenfeld points out that in reality those boards were the same as most others and regular reviews and evaluations did not show up any particular problems. They all had good attendance of directors, had committees for risk, audit etc., and there were codes of conduct in place. He states that board makeup and expertise was not any more of an issue in boards that failed than those that succeeded. They passed the tests normally applied to board’s and directors’ performance.

Sonnenfeld goes on to highlight a critical element in effective boards – what he calls a “virtuous cycle of respect, trust, and candor”(sic). He says that:

“Team members develop mutual respect; because they respect one another, they develop trust; because they trust one another, they share difficult information; because they all have the same, reasonably complete information, they can challenge one another’s conclusions coherently; because a spirited give-and-take becomes the norm, they learn to adjust their own interpretations in response to intelligent questions.”

Open Dissent is Vital

Sonnenfeld says that one of the most important elements is “a culture of open dissent” where board members feel free to challenge assumptions and beliefs. This comes with the implication that the bonds between board members are able to withstand clashes of viewpoints and dissenting opinions.

Clearly many boards lack this virtuous cycle and particularly the “candour” element. This prevents questions being asked that should be asked and prevents better decision making because assumptions underpinning decisions are not challenged or tested. The concern is that many boards operate inside an echo chamber where beliefs are amplified or reinforced by communication and repetition inside a closed system.

Anecdotal evidence indicates that many principals and board chairs actively try to avoid board dissent perhaps mistakenly thinking that dissent is not a characteristic of a healthy board when in fact the opposite is more likely to be true, especially where respect and trust are present. Boards also need to understand the difference between dissent and disloyalty. All members of the board need to understand this distinction and not be afraid of the former but rigorously prosecute any hint of the latter.

The Importance of Board Evaluations

Evaluating board performance is essential to the continued high functioning of a board but the evaluation must ask the right questions – this is discussed below. Sonnenfeld quotes a number of surveys where it was clear that a majority of boards had never been subject to internal or external evaluations and where the CEO’s performance had also not been evaluated.

Board evaluations can help a board to function more effectively by highlighting issues and giving members a voice to highlight what they see as important in improving the overall performance of the board. Evaluations can take many forms from quick surveys of members after each meeting to larger internal and external evaluations which can include peer review. Sometimes the evaluations can focus on specific issues such as whether the board is sufficiently focused on strategic issues and whether planning days are effective.

Board Evaluations – Asking the Right Questions

Many board evaluation processes tend to focus on the items which have little to do with overall board performance and are more related to matters that will keep the board ‘safe’ but not necessarily effective-matters such as attendance, punctuality, preparation, participation, skills and qualifications, age and experience. If boards evaluate these items, they may well ‘pass with flying colours’ as the saying goes, and some might say such a board is effective because it is full of ‘team players’.

It is important that board evaluations are directed to qualitative and effectiveness issues not just the standard and ‘safe’ questions. Some recommended questions include:

• Is dissent welcomed and is active and respectful disagreement regarded as healthy and normal?
• Does the chair encourage robust and respectful discussion and disagreement?
• Is the board given a variety of viewpoints or only given information that focuses on one side of complex strategic issues and decisions?
• Does the board value all questions and opinions or constantly defer to ‘experts’ or the chair or principal?
• Are some board members regarded as ‘difficult’ because they ask too many questions?
• Are there more questions that board members would have liked to ask but felt constrained by board norms regarding the questioning of decisions?

Conclusion

Board evaluations like any form of self-evaluation can be painful because to be effective the evaluation must be aimed at both highlighting what is being done well but also what is not. Board evaluations that seek to uncover qualitative and effectiveness issues within the board operations could be especially uncomfortable but at the same time provide helpful information to enable the board to improve performance.