High Performance Boards. Didier Cossin
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handles’ that help to capture not only the composition of personalities and the risks involved, but also the configurations which, with a bit of planning and effort, can help to infuse the board with additional vibrancy and strength of performance.
Boards can productively employ and draw on a number of taxonomies in this regard. For instance, personality diagrams highlight board members' introversion or extroversion, their abstract ‘big picture’ thinking or orientation to detail, their level of emotional reactivity, and the emphasis they put on competition as opposed to harmony. The well-known NEO Personality Inventory framework describes the ‘Big Five’ dimensions of personality: emotionality, introversion/extroversion, openness to experience, agreeableness, and conscientiousness (see Chapter 13 on Group Dynamics and Board Culture).
As important as skills and quality are, directors must also be focused and dedicated. Yet these attributes are often missing, in varying degrees, from the boardroom.
Dealing with ambiguities in decision-making is inevitable – in fact, it is a sign that the board is addressing real issues. But when directors misunderstand their roles and functions, their focus suffers. To sharpen and re-energise it, boards would do well to establish their own statement of purpose (often codified as a board charter statement) and define their role in a way that adds value to the company's activities. Boards need to reflect regularly on their involvement and strive to make it firstly distinctive, so that they do not replicate the efforts of other parts of the organisation; and secondly additive, whereby the board builds upon decisions made by the firm.
Well-focused boards know how to distinguish between contexts. From there, they determine whether they should perform a supervisory role or rather offer support to management. Such boards are ready to be proactive and jump into pre-emptive action when they see signs of risk and recognise that oversight is needed. In other situations, such as during a crisis when the organisation's reputation is at stake, they are just as efficient in identifying and acting on the need to communicate the firm's strategic objectives. In addition, a board's focus can be strengthened by having the right agenda: one that looks more towards the future than the past, and that aims to capture long-term issues while managing short-term matters.
But even high-quality, focused boards will underperform if their members are not fully dedicated to their work and to the organisation. Directors frequently tell me that their board meeting discussions reflect a level of preparation that was ‘basic’ and ‘not in great depth’. A minority of them do report rich and diverse preparation, where board members have diligently read the relevant documentation and obtained external information where necessary. But all too many describe the board members in their organisations as typically ‘not very well prepared’. The percentage of directors who have regularly witnessed great preparation for board meetings, with members actively consulting outside sources and analysing information in depth, is in fact small.
A similar picture emerges when we ask board members how many hours of preparation time one hour of a board meeting requires from each director. Typically, more than half of them estimate one to three hours of preparation, around 25% report three to seven hours, and only a minority report seven to ten hours. It is rare to hear of directors spending more than ten hours preparing for each hour of a board meeting. Worryingly, in fact, a few say that less than one hour of preparation time is required – even though most responsible individuals believe that a director should not sit on more than five boards at once anyway. Is this what board work has come to?
A director's sense of dedication should entail precisely what the word implies: giving freely of one's self, and not just because of the high-powered networking, access to industry information, and higher social status and income that come with the position. And, indeed, there are many directors whose main motivation for joining a board is their desire to contribute to the company's success, and who consider it an honour to serve in this capacity. These are the types of dedicated individuals that boards need to attract and empower: people of integrity, character, and conviction who are ready to speak up and voice their concerns for the greater good of the organisation.
The Second Pillar: Information Architecture
Sophisticated information architecture is key to successful boards. Although this design does not necessarily need to be complex, it should inform the board about all the company's essential activities and the issues facing it, both now and in the future. When considering information design, directors should have three rules of thumb.
First, board members should have as much information on external issues as they do on internal matters. Boards typically think of information as coming from management. Ideally, this will be brief, well focused, prioritised, and strategic, with executive summaries, key issues to tackle, and options to consider. But directors should also be fully informed regarding external issues, such as reputation analysis, the competitive landscape, customer knowledge, an understanding of shareholders, and technological evolution. Often, however, this is not the case, resulting in boards that do little more than go through the motions. Clearly, there is significant room for improvement.
Second, directors should have both formal and informal information channels. Formal internal information should be jointly designed by the board and management, with briefings that include financials with forecasts, a CEO report, risk and opportunity maps, analysis of the management gene pool, and a summary of financial analysts' views. In addition, regular communication between management and the board, for example via management letters between meetings, provides further efficient and timely information. Board committee reports are also fundamental in building the depth of knowledge required by directors in specific areas – as long as such reports include analysis of the issues and not just recommendations. It is critical that the board is actively involved in designing the information, including whether that design should change along with the firm, its environment, and its strategy.
At the same time, informal channels of information are key, and need to be cultivated. These channels should be diverse and well structured, giving board members access to employees and stakeholder networks, links to fellow directors outside board meetings, and connections with management. This might be through a Sunday afternoon barbecue, a coffee during the week, or an early evening call, depending on the board member. Such interactions must strike the right balance, providing board members with greater freedom and inspiration without infringing on management's role.
Third, dedicated directors should aim to receive as much information from independent sources as they do from management. Rather than relying solely on management information, these board members see it as their duty to track down the most useful social media posts, market information, and other sources.
The Third Pillar: Structures and Processes
As governance becomes more sophisticated, its structures have likewise evolved greatly. Board effectiveness is hugely influenced by the quality of the structures and processes organised by the board secretariat and steered by the chair. It is imperative that boards regularly benchmark these against the ideal situation and act to address any divergence.
In the most basic structural terms, the size of the board should be carefully examined, in addition to the necessary number and effective functioning of board committees. The main goal is to ensure that the board's committee structure is pertinent to the current reality of the organisation. There are a number of innovative and inspiring examples in this regard, such as HSBC's committee on Financial System Vulnerabilities, which addresses one of the primary strategic issues in banking today. In addition, board innovation committees are becoming increasingly common at companies operating in industries at high risk of disruption. Both Procter & Gamble – a global giant in fast-moving consumer goods – and UK-based bank RBS have a Technology and Innovation Committee on their respective boards, for example.
As we mentioned earlier, beyond its structural ‘hardware’, a board should radiate a well-managed diversity of personality, experience, gender, and opinion. The independence of board members is crucial too – but so is their structured access to the right individuals. For