As the governing body of an organisation, the performance of a board will have a major impact on the success of the organisation. Assessing and improving the effectiveness of the board is vital to driving organisational performance.
Without assessing performance, boards and directors are likely to miss out on feedback and self-reflection that would help them understand their strengths, development needs and how they can improve organisational performance.
What contributes to high performance?
A board should add value to the organisation over and above what is contributed by management. To be able to do this, a board needs to be very clear about its role and to be able to work effectively as a group.
High-performing boards have effective structures and processes, but equally important is the culture and behaviours of the board as a team.
Structure and processes
Culture and Behaviours
Common challenges boards face
Every board is different, but there are common challenges that boards often face:
- Dominating directors – one or two people dominate discussions
- Passive directors – miss meetings, do not read material, do not contribute actively to discussions and decision making
- Agenda dictated by management
- Stepping on management’s toes – being overly involved in operational matters, causing frustration and duplication of effort with management
- Inefficient meetings – not run to schedule, no clear agenda, no clear outcomes
- Ineffective decision making – group think, indecision, inability to gain consensus, continually going over the same ground
- Being too polite – avoiding constructive conflict and debate
Stakeholder expectations and compliance requirements
Increasingly, regulators, stakeholders and legal obligations are requiring boards to assess performance.
- The ASX Good Governance Guidelines recommend that companies evaluate the performance of the board, committees and individual directors, and that they publicly disclose their performance assessment approach.
- APRA prudential standards require boards in the financial services industry to have a process for assessing board performance.
- Many public sector boards have legal obligations to assess board performance. For example, in Victoria government boards are legally required to assess the board as a collective and individual directors.
More than ticking a box
Where performance assessment is required, boards may be tempted to do the bare minimum and move on. This may tick the compliance box, but is a missed opportunity to develop board capability and strengthen organisational success.
Of course, a board needs to select an evaluation method that suits its size, resources and maturity. Sometimes, a short, targeted self-assessment will be just the right approach. The key is for the board to consider its current context and needs and select the approach that will get the most benefit for directors and the organisation. This may require directors to demonstrate leadership and expose themselves to a level of discomfort, to really generate insights and opportunities for improvement.
Performance assessment should be a constructive process. It allows boards and individual directors to identify and improve on strengths, and to allow areas where performance is below expectations to be identified and improved.
Well executed performance assessments produce real benefits:
- Demonstrated leadership by the board
- Developing a culture of performance across the organisation
- Improving board dynamics
- Clarifying expectations of directors and management
- Professional development and fulfilment for directors
- Building effectiveness of relationship between board and management
- Opportunity to improve efficiency of board processes and resources
- Demonstrating maturity in governance to shareholders, funders and other stakeholders
- Skills identification and succession planning
Approaching board performance assessments
Ideally, performance of individual directors and the board as a whole should be assessed annually. There are many ways this can be done, including internally run processes, externally facilitated assessment, self-assessment, benchmarking and gathering feedback from management, peers and stakeholders.
It is good practice for an independent assessment to be conducted by someone outside the organisation, at least every second or third year.
For maximum benefit and efficient use of resources, a performance assessment technique should be tailored to the needs and resources of the individual board.
TMS Consulting can assist you in:
- Designing a board performance plan, including performance criteria and how performance will be assessed.
- Developing self-assessment materials for you to conduct your own board and director performance reviews.
- Designing and conducting independent performance assessments for your board and directors.
- Capability building for individual directors and board as a team.