With all of the resources, skills, and expertise around governance excellence, one would think that there is a simple checklist of things to do to achieve it, and voila, your board is excellent.
However, we all know that it doesn’t work this way. Even implementing all of the recommended best practices still only scratches the surface of board excellence. First, achieving excellence is a process, not a destination, and second, boards are trying to work with people to oversee an ever-changing landscape of challenges in the business.
There are, however, several essential practices that the Chairman can implement to move along the path of board excellence:
1. Identify board dysfunction. Even with all of the world’s be processes, a board will not achieve excellence if there is dysfunction in the board room, either in communication practices, treatment of management, or an over boarded director.
2. Embrace the difficult conversation. With whomever the conversation needs to occur, don’t avoid it to maintain peace or congeniality
3. Change the board meeting structure. Move away from long management presentations, which leave little time for deep discussion and dissent. Getting the debate on the table is a great way to mitigate dysfunctional ex-board room discussions between directors.
4. Incorporate an Executive Session. Each meeting should have time set aside for an executive session. This is another way to get items in front of the whole board for debate and avoid unproductive conversations outside of the board room.
5. Conduct a skills assessment every two years. The board composition needs will change as the company evolves, ensure that the right talent and skillsets are on the board. If not, consider this a significant focus for board education.
6. Conduct an annual board evaluation. Consider hiring a 3rd party to conduct a board evaluation. You will be surprised how candid a director will be to an outsider.
7. Implement change. Document and make an implementation plan for the recommended modifications identified in executive sessions, board meetings, or board evaluations. Demonstrating a willingness to change and adapt practices will be reassuring to management and board and will generate additional feedback on how to move towards board excellence.
8. Refresh the board. In the 2020 PWC Annual Corporate Directors Survey, nearly 50% of respondents thought that at least one director was no longer adding value. Don’t hold on to directors for too long. If a director has stopped adding value or a different skill set is needed, don’t wait for the director to age or term out. Be proactive.
Not all boards are on the path to excellence. Not all boards even know that it exists, but those boards that are determined to act as fiduciaries to the shareholders and add value to the business understand that board excellence is a journey, not a destination.