A board of directors is one of the single most essential bodies of an organization. In the article below, we’ll be looking at what defines board effectiveness and what goes into a modern-day board director role, as well as challenges to be overcome and useful tools for board evaluation and other roles.
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What is a board effectiveness system
Precisely defining what we mean by board effectiveness is an important step towards actually improving your board performance.
So, what is an effective board?
There are several factors to have in mind. Some of the main responsibilities of corporate boards include:
- Defining a corporate culture and setting up the conditions for long term value creation
- Establishing the company’s strategy and overall direction
- Directing the company and delegating to the management team
- Understanding the company’s governance needs, ensuring an decision making process
- Providing feedback concerning the organization, including challenges faced and areas for improvement
- Representing or being accountable to the company’s shareholders
- Critically evaluating board effectiveness
- Recruiting new board members
Board members new roles for board effectiveness
The role of a board member is changing with the times.
Whereas traditionally the role of a board director gave a lot of emphasis to responsibility before a company’s stockholders, the pandemic has brought into sharp relief the need for social responsibility, as well as working to establish compliance with relevant government regulations.
We now expect greater commitment from the board leadership, which also impacts a number of key board dynamics. As an example, more frequent board meetings tend to be called for. Board discussions often require more in-depth information and broader communication both within the company and before society as a whole.
Dealing with board effectiveness issues and challenges
Board members are expected to approach some tough questions on the board agenda. Among the main aspects of enhancing board effectiveness, board members have to:
- Manage risk: accurately assess new opportunities and threats in a rapidly evolving environment
- Adapt to technological shifts and the new realities of an ever-changing society
- Correctly process information: in a world of big data, coming to the right (and actionable) decisions from all the information available is a tough skill, but an essential one
A board effectiveness checklist for board members
We’ve seen above what are the main tasks and responsibilities required of a board of directors. Now let’s take a look at how to determine the effectiveness of a board of directors.
For this board effectiveness checklist, we’ll briefly go through five of the main roles in a board of directors and the requirements thereof:
- How does the chairman impact board of directors effectiveness?
- What is the role of senior independent directors?
- How do directors help an effective board?
- What is the CEO’s role?
- What is the role of the company secretary?
In addition to the board effectiveness checklist for board members, another crucial aspect of corporate governance is the implementation of D&O questionnaires. These questionnaires gather essential information about the background, qualifications, affiliations, potential conflicts of interest, and other pertinent details of each director and officer serving on the board.
1. How does the chairman impact board of directors effectiveness?
The chairman, or chairperson, is the main leadership role, and as such holds a higher level of responsibility over the board. For a chairman evaluation of board effectiveness, consider the following areas.
- Do you provide effective ethical leadership to other individual directors?
- Do you help guide and lead board meetings and board member discussions?
- How do you encourage board education in general?
The board agenda
- How do you establish priorities for the board’s agenda?
- How do you determine key strategy and performance issues for the board’s consideration?
- Do you plan meetings ahead and allow plenty of time for debate?
- Do you encourage board members to review and evaluate past meetings?
Information and communication
- How do you ensure adequate communication to and between board members?
- Do you coordinate with the board secretary to that end?
- Are (mis)communication issues frequent?
- Is there a self-evaluation system in place for the board?
- Do you give other members an important role in the evaluation process?
2. What is the role of senior independent directors?
A senior independent director (SID), also known as a Lead Independent Director, can sometimes act as a middleman between the chair and other directors. His/her roles include:
Supporting the chairperson
- As an SID, do you foster a positive relationship with the chair, making sure they can trust and rely on you?
- Are you prepared to step in times of crisis to provide the necessary support?
- Do you help detect and address concerns from shareholders or directors, and convey them to the chair if necessary?
- How do you gauge board members’ attitudes/views towards certain decisions, and how do you make sure they’re addressed to everyone’s satisfaction?
- How do you help evaluate and direct the succession process for board members or directors?
3. How do directors help an effective board?
As an executive or non-executive director, you share the responsibility for the performance of the board. Important questions to have in mind are:
- Do you feel adequately prepared to participate in the board, or do you need further training in order to fulfill your role as a board member?
Overall board function
- How do you submit or plan to submit your proposals to the board for approval?
4. What is the CEO’s role?
While sharing some of the roles of other directors, the CEO’s role is an altogether different element of the board composition, and as such requires some important answers:
- How am I conveying my view and strategy for the company to the board?
- Do I have a good relationship with the chair? What can be worked on to ensure a smoother cooperation?
- Am I being open to feedback from other directors and board members?
5. What is the role of the company secretary?
The secretary has a key function in administering the board of directors, board committees, and pretty much every aspect of the board dynamics.
Questions a secretary should ask him or herself include:
Information and communication flow
- How do you prepare and present important information for the board decision making process?
- How often do you communicate with individual directors on specific issues?
- Do you have a process in place for preparing and distributing meeting minutes?
- Are the directors satisfied with the information provided to them?
Induction and training
- Do you play a role in the board member onboarding and training process?
- How do you provide feedback on the training?
- How do you offer further support to new members, if necessary?
For all these tasks — and many others too, — technology is your ally. Board portals are designed especially with corporate governance issues such as board evaluation, board meeting minutes and agendas, and easy retrieval of stored files in mind.
Further below, we’ll see how high performing boards leverage board portals and some ways to improve effectiveness of board of directors.
The key practice of annual board self-evaluations
An effective board of directors needs to grow and develop as new challenges are met, and a key tool to that end is practicing regular analysis and criticism of the board’s operation. Board effectiveness is difficult when members fail to see or acknowledge areas of improvement, and the same mistaken practices get repeated on a regular basis.
Besides increasing board effectiveness, annual self-evaluations help increase oversight and shareholders trust. Regular evaluations are an important part of maintaining accountability and transparency in the board’s corporate governance.
Although it is a critical component of corporate governance, many boards fare poorly at this task. With an eye to increasing board effectiveness, remember to:
- Clearly define the “why” of the evaluation
- Establish criteria for the evaluations and submit for the board meeting approval process
- Hold a board meeting dedicated especially to that
- Ensure members feel comfortable providing feedback on the board’s performance
The key practice of annual board self-evaluations and board effectiveness should be complemented by holding regular annual board of directors meetings – essential gatherings where the board comes together to discuss crucial matters, review the organization’s performance, and plan for the future. These meetings offer an opportunity for board members to share insights, make important decisions, and align their efforts towards achieving the company’s strategic goals.
How board portals help make an effective board
Board portals are a key instrument of modern corporate governance and to ensure the effectiveness of the board of trustees.
From organizing the board’s agenda, paperless board meeting minutes, board evaluations, and other board materials to hosting board and committee meetings, conducting the board evaluation process, and setting up board committees, they help with simplifying tasks, enhancing communication, and improving board effectiveness in general.
Here are some ways board management software can help improve board performance in general — and corporate governance in particular.
- Ease of access to data. Board members can easily review board materials at any time of the day or night.
- Remote meetings. Some portals allow board members to incorporate solutions such as Zoom, which allows directors to create a streamlined and secure virtual board meeting.
- Self-evaluation process. Most board portals include features such as polling and voting, which can help with board evaluation and to further determine the board composition.
- Security. Data stored and messages sent are encrypted, which helps protect board member data and guarantee privacy, along with many other security features.
- Audits. Whether conducted by individual directors or outside contractors, board audits are facilitated thanks to the greater ease of access and trail of board activities.
- Board agenda. As another way to improve board effectiveness, board members can easily distribute agendas, meetings of previous minutes, and reminders to other members
There is an ample choice of board portal available. Board portals such as iDeals, one of the top names in the industry, will provide you all of the above features — and many others to improve effectiveness of the board of directors.
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Frequently asked questions
To summarize, here are some common questions that we addressed in this article.
How to determine the effectiveness of a board of directors?
Look at each role in the board of directors and ask yourself if its duties are being effectively discharged, and whether board directors are satisfied with the pace of things and results obtained.
How to measure board effectiveness?
A key answer to the question of how to improve effectiveness of board of directors is the need for transparent criteria and goalposts that reveal when board operations are going according to plan and when they’re coming short.
Board effectiveness: What works best?
There isn’t a one-size-fits-all solution. Board leaders should have in mind the importance of board effectiveness and work together to achieve it. This includes shaping the board structure with an eye to performance, ensuring a healthy feedback loop, and conducting regular self-analyses.