How can you put in place the right systems, structures and processes to ensure that your Board drives success?
Any organisation, whether in the private, third sector or public sector is only as good as the people who lead it. Board members have a vital responsibility to define the vision and mission of the organisation, to decide its strategy and objectives, to manage the risks and to fashion the ethos and culture of the organisation.
The Board is the epicentre of any system of corporate governance, by which the organisation is directed, controlled and held accountable to achieve its purpose and create value over the long-term; it must balance the needs and interests of different stakeholders, whilst at the same time providing the entrepreneurial drive and leadership to succeed. Sound governance should be seen as a source of competitive advantage, not a brake on progress.
Four key tasks of the Board
An effective Board has four main strands to its work:
- To establish and maintain the vision, mission and values of the organisation (the vision should be an inspiring picture of the organisation’s potential, the mission is a statement of how to achieve the desired state, whilst values are the principles and deeply held beliefs and standards of conduct embedded in the organisation’s way of doing things).
- To decide the strategy and structure – the Board should continually review and evaluate the strengths, weaknesses, opportunities and threats and consider how best to play to the organisation’s strengths, or bolster the required competencies. (More on strategy here).
- Delegate authority to managers and then monitor and evaluate the performance of the strategy and business plan, whilst maintaining appropriate monitoring and controls over risks; determine the appropriate KPIs to be used for effective monitoring.
- Communicate with all the stakeholders in the organisation (such as customers, employees, funders, and members): maintain a continuous dialogue to understand their needs, promote their goodwill and support.
In carrying out these tasks, there needs to be a dynamic dialogue within the Board. As the Walker report into the behaviour of bank boards during the financial crisis found, many boards ‘lacked a disciplined process of constructive challenge’. They had descended into ‘group think’ and had focused on conformance with rules, rather than thinking laterally and strategically. The Financial Reporting Council in its 2010 Guidance on Board Effectiveness tells us, ‘An effective Board should not necessarily be a comfortable place. Challenge, as well as teamwork, is an essential feature’.
The role of the Board
One of the Board’s first tasks is to decide how it will function and identify the key issues and decisions which it must tackle collectively and which cannot be delegated – a schedule of reserved matters. Following that, there will be a scheme of delegation of powers to executive managers, committees and subsidiaries. Typical matters reserved for decision-making by the Board, include:
- Approval of the annual report and accounts
- Approval of dividends (in a profit-distributing organisation)
- Approval of communications with members and the public
- Appointment or removal of auditors
- Developing, approving and reviewing the strategy
- Approval of operating plan and budgets, review of progress against budgets
- Approval of expenditure and contracts in excess of delegated limits
- Approving the prosecution, defence or settlement of any litigation
- Approval and ongoing monitoring of risks – the board should set appropriate risk management policies and seek regular assurance that the system is working effectively
- Appointment and removal of Board members and senior executives
- Succession planning for key roles
- Ownership of health and safety policies
- Approval and ownership of ethics codes and CSR policies
- Setting terms of reference for delegation of powers to executives and committees
Practical steps for success
There are several practical organisational steps which will contribute to success of any Board:
- The Board must be properly constituted with the right skills and have the resources to undertake its duties, such as a good company secretary. Board members must dedicate sufficient time to their role.
- The number of meetings should be sufficient to deal with the business effectively.
- Agendas should be properly planned and sent out in advance, together with supporting papers to allow for prior reading and preparation.
- There should be enough time to devote to the items on the agenda, with the right focus on the most important topics – especially strategic issues, rather than mundane operational detail.
- Minutes should be accurate and available promptly to aid follow-up actions. (Minutes also form a legal record of decision-making that must be kept for up to 10 years).
The organisation’s governance framework should be implemented in a way that is proportionate and realistic. However, as the Financial Reporting Council commented in 2009, the quality of corporate governance depends ultimately on the behaviour of individuals, not on procedures and rules. That leads us to consider what are the desired qualities and skills of valuable Board members?
Desired attributes of Board members
The late Neville Bain, former Chairman of the IoD boiled it down to ten attributes:
- Ability to understand issues and identify central points for decision
- Sound judgment – probes facts and assumptions, weighs evidence to arrive at decisions
- The ability to provide and accept challenge in a constructive way
- Ability to influence through clear communication and persuasion
- Good interpersonal skills and ability to manage conflict
- Forward thinking – anticipating new trends and events, alert to the need for change
- Ability to think strategically, to understand the role of risk analysis and control
- Financial and commercial skills to understand how well the organisation is progressing against its goals.
- Integrity and high ethical standards – which they live by in practice.
- Good self-awareness – a thirst to improve personal knowledge and performance.
Boards must strive for continuous improvement
An effective Board should aim to be a learning organisation. They should continually review their collective performance as well as the performance of individual members. A useful way to approach this is through a structured external board effectiveness review, such as BoardCHECK360™ offered by Elderflower Legal. The review will examine various aspects of the Board’s operating procedures, composition and succession planning, induction, meetings management, internal controls and risk management, delegation and will highlight good practice, as well as areas for improvement.
As Bob Garratt tells us: ‘Directors are there to ensure that at the cybernetic centre of the enterprise, there is a heart and brain. This heart..creates an emotional temperature appropriate to that specific organisation. This is the essence of that organisation’s climate or culture”.
Next time: the pivotal role that the Chair plays in developing a successful Board.