Board Effectiveness Trevor Hunter MOS 4422 Corporate Governance King’s University College.

Board Effectiveness

Trevor HunterMOS 4422Corporate GovernanceKing’s University College

Board Effectiveness

• It is important that the Board take the time to assess its own performance– Hard to do any time, but particularly

hard when there is a lot of pressure– If you don’t look at how you function

how will you know if you are fulfilling your role?

– Self assessment – Is it worth it? Research suggests – YES!

2

Board Effectiveness

• Evaluating the Board:–Likely face a lot of resistance – why

rock the boat?• It’s hard because you have to do it to

yourself• Who can admit they are not performing as expected?

• Feeling of hubris: We’re professionals – of course we are doing a good job

• Fear of singling people out or being singled out

3

Evaluating the Board - Why do it?

Boards that perform self-assessment:–Can keep a better eye on their goals

–Ensure that they are not abdicating or delegating their responsibility to management

–Work together better because there is a more refined operational mindset

4

Evaluating the Board

• Resistance may come from management:–Fear of a passive Board becoming active

–Fear of losing good members–No desire to admit there is a problem- may reflect badly on them or make their lives more difficult

5

Starting the Process

People resist change until they think that there are problems they can fix:

–Create awareness of problems• Anonymous questionnaires• Consultants• Board task force• Report results

6

Starting the Process

People are more likely to make a change when they have no choice but to change

– Capitalize on circumstances• New CEO or Board chair• Significant Board turnover• Changing customer base• Crisis or success• Pressure from government/regulators

• Change in environmental landscape7

First Steps*

1. Determine indicators your organization’s health – should be able to reach easy consensus– Financial stability– Operations achieving goals– Operating cost per dollar

earned– Examine long-term trends*Adapted from: Bugg & Dallhoff, 2006. National Study of Board Governance Practices in the Non-profit and Voluntary Sector in Canada, Strategic Leverage Partners Inc.

8

First Steps

2. Set Board member expectations and evaluate on the basis of those expectations.

– Have a clear outline of the expectations of Board members and the tools to evaluate whether those expectations are being met

– Need consensus on what members expect out of the assessment

– Leads to concrete goals, buy in and accountability

9

First Steps

3. Set measurable objectives and create a work plan for reaching goals– Focus on strategic direction– Policy reviews– Revisit by-laws– Build in milestones– Evaluate based on

accomplishments10

First Steps

4. Hold annual peer, Board, and individual Board member assessments

– Anonymous questionnaires– Consultants– Board task force– Report results– Survey constituents

11

Board Evaluation QuestionnaireQuestion Excellent Good Average Fair Poor Not Sure

Our Board has a clear understanding of our role and responsibilities.

Our Board is focused on furthering the mission of ???

Our Board sets clear goals and objectives for the future.

Our Board monitors and evaluates our goals and objectives regularly.

Our Board provides clear strategic direction for ???.

Our Board ensures strong financial stewardship and long-term planning.

Board meetings are well planned and productive.

We receive written reports and materials in advance of Board meetings.

Board members are prepared for meetings and participate actively.

All Board members participate in important discussions.

We encourage and support differing points of view.

We all support the decisions that we make.

Our Board meetings are interesting and fun.

We have a clear understanding of Board vs. Executive Director roles.

There is good communication between the Board and the ED.

Our Board is given appropriate information about operational activities.

Our Board makes informed decisions.

Our Board is supported by an effective committee structure.

There is good communication between committees and the Board.

12

Pitfalls in Board Evaluation

• Not distinguishing between measuring the Board and measuring the management/organization – i.e. using the wrong measures– If corporate objectives are selected as

Board measures, they do not really reflect what the role of the Board should be• Indication of Board dysfunction?• Managing rather than governing

13

Pitfalls in Board Evaluation

• Finding good tools to evaluate how well the Board is governing the organization–Which is the best way depend on your

Board• Anonymous questionnaires – better for the more dysfunctional Boards

• Consultants• Open discussions

14

Director Liability

• Director liability protection– Most organizations have policies that

indemnify Board members from liability when it can be shown that they have fulfilled their fiduciary duties

– Director liability insurance can be purchased to further back them up• Makes membership safer and more attractive

15

Director Liability

• Directors can be liable for the actions or inactions of the organization that cause “pain” if they have not undertaken reasonable oversight–Relates to duty of care –

expectations for duty of care match one’s level of expertise

–How much oversight does the Board really have?

16

Director Liability

• Oversight risks:–Dependent on CEO for information

– is she/he hiding things?–How “attendant” are you as a

Board member? – Do you really know what is going on?

–How removed are you from the operations?

–These are your responsibilities and risks

17

A Director’s Role in Assuring Good Governance

• Seek information:–Request as much information as

you think you need to gain perspective on the organization’s goals, challenges and operations so you can make informed decisions

–Review orientation materials (if there are any) and remember why you joined

18


• Speak up!:–Don’t keep a low profile, you are

there to help the organization. If you don’t add to the discussions then you don’t add the value your selection was supposed to bring.

–Balance contribution with speaking to be heard – there is a difference

19


• Don’t be afraid to rock the boat:–The status quo is not always the

best–“Because it is the way we have

always done it” is not an acceptable answer

– Investigate why are things done the way they are done – are there better ways?

–Avoid analysis paralysis but don’t pass things without questions

20


• Help build the Board “team”:–Encourage times when the Board

can meet away from the organization and management – build relationships• Retreats, team building exercises, consultants

–Keep eyes and ears out for potential members

21


• Talk on the record:–Leadership comes in the

Boardroom, not in the parking lot to only one other person

–Must be confident to make comments on record or else the value is minimal

–Requires preparation and commitment

22


• Oversight not management:– Need to understand the difference

between stewardship vs. management• Are our operations effective and efficient? Are they run well and appropriately?

• Are the operations focused on maximizing shareholder wealth?

• Are future plans strategic or tactical?

23


• Requires “guts” on the part of the Board:– Asking the right, tough questions of

management• Tough, not adversarial

– Asking for appropriate information from management• All information flows through management - importance of the right CEO

24


• Balance passivity and activism:–Can’t run the organization but

cannot ignore it either–Trust but “cut the deck”

25

Board Effectiveness Trevor Hunter MOS 4422 Corporate Governance King’s University College.

Documents

passive board

board monitors

board meetings

board effectivenessevaluating

board member expectations

expectations of board

clear goals

clear strategic direction