To be effective, a company needs an effective board. Effectiveness reviews are one way to achieve this, but what insights are needed to take full advantage of them? And how can these insights be obtained? Sabine Dembkowski of Better Boards describes the seven hallmarks of effective boards.
Boards are highly complex constructs and full of ambiguous power relationships. An appointment to an executive or governing board is often perceived as the culmination of a distinguished executive career. It is the ultimate challenge to be effective in these complex environments – be it as a Chair who orchestrates the board, the CEO who has to ensure that the numbers are in line with expectations, or the member of a board or NED aiming to cement their position in the business community.
Increasing risks and scrutiny from investors and the media put boards to the test. They are challenged to continuously learn, evolve, and increase their effectiveness. Fully facilitated external and internal reviews form an integral part of annual board calendars and are there to help members gain insights on how they can become more effective. As pressure increases on boards, so does the pressure of the practice of conducting these reviews. In recent years we have seen some big shifts.
The questions that arise are what insights do Chairs, CEOs and Directors need in order to become more effective? How can these insights be obtained? What type of data is helpful? In this article we provide insights into our research and practice of working with the boards of industry-leading organisations.
One can ask the board many “interesting questions”. And this is exactly what appears to have happened and has contributed to the resistance of boards to engaging with effectiveness reviews. Instead of asking “interesting questions”, we focus on those variables where there is evidence that they are linked to effective boards. For this purpose, we looked into the Anglo-Saxon and German-speaking literature and conducted more than 100 interviews with Chairs, members of boards and partners of private equity firms.
The research resulted in the seven hallmarks of effective boards, which provide us with a sound foundation for the questions we ask as part of board effectiveness reviews.
The strength of the board
Although conducting fully facilitated external and internal board effectiveness reviews is an integral part of the annual board calendar, they are not loved. It is fair to say that most members of boards dread the reviews.
Confrontational questions by reviewers eager to identify what is wrong with the board, and where the gaps are, have conditioned board members to answer politely without engaging in the process.
Recent research is clear that, rather than looking to identify what is not working, it is far more effective to focus on identifying what is working. This is exactly what we are doing in our reviews.
For an effective board, it is vital that members understand what their strengths are in the specific context of the board, and how members can best leverage each other´s strengths.
The recent pandemic years did not help. New members that came on board might not have had a chance to meet, as face-to-face time was not possible or was limited. We see at present that members of boards have become used to the virtual world. It is cost-effective and convenient to participate in board meetings via Zoom or Teams. However, it comes at a price. Members of boards know less about each other and do not understand how they can best leverage each other’s strengths.
Composition of the board
Talk about gender and women on boards has overshadowed the discussion about board composition in recent years. The questions are more complex and require deeper insights in order to generate truly effective boards.
One has to look beyond the “labels” and understand the presence and the development status of know-how areas and behaviours of individuals in a group setting.
It is crucial to understand how different know-how areas, preferred roles in a group setting, and personality styles complement each other and fit with the specific situation of the organisation, i.e., the development cycle of the organisation, the strategy, and the value-creation plan.
In our reviews, we see at present that know-how areas related to the “newer” topics like digital, cyber, transformation, climate, and ESG are not as well developed as their importance would suggest.
Clarification of roles and responsibilities
The transition from an executive to a non-executive career is not an easy one and, for some, it can take years to fully adjust to their role on a board. We find that the greater the pressure on an organisation and operational performance, the more likely it is that the lines between executives and non-executives get blurred and conflicts arise. Clarity of roles and responsibilities is a vital hallmark of any effective board.
Vision, goals, and focus of the board
The vision for an organisation can become one of the most hotly debated topics on any board. Are all members aligned? Does everyone around the table have the same understanding of the vision? Does everyone interpret the words in the same way?
Once a vision is set, it is vital that all members of the board have the same understanding of the vision, speak with one voice, and agree on the goals and focus of the board.
The structure and organisation of the work of the board
The organisation of the board’s work depends critically on the board secretaries and the interplay of the Chair and CEO. Effective boards understand how to organise and run their meetings.
Ability to resolve conflicts
Effective boards and their members understand how to resolve conflicts amongst themselves on the board and between the board and the next management level. More than that, effective boards understand who in the group is best placed to resolve conflicts and how to leverage those board members.
Regular reviews and reflections on the work of the board
Regular time-outs, where board members can connect, leave the daily work behind, and reflect on how they work together, are the hallmark where there is greatest evidence. There is a strong and clear correlation between time taken out to reflect on how a board is working together and its effectiveness.
As effectiveness reviews are unloved and the best data can only be obtained when all board members engage in the process, questions have to be asked in a neutral and non-confrontational manner.
The practice of conducting board effectiveness reviews has evolved. As pressure increases on boards to learn, adapt, and become effective, so does the pressure of the practice of conducting these reviews. The seven hallmarks of effective boards provide a sound foundation for effectiveness reviews. The hallmarks are based on research and point towards the areas in which neutral and non-confrontational questions have to be asked to create more effective boards.
This article was originally published on June 28, 2023.
About the Author
Dr. Sabine Dembkowski is a Founder and Managing Partner of Better Boards. She is a trusted board advisor who has worked with and alongside companies listed on the FTSE and DAX, global organisations and leading Private Equity and Professional Service firms. Her research into board effectiveness has been peer-reviewed and published internationally.
With a PhD in business management, Dr Sabine has established two successful businesses, The Coaching Centre and Better Boards. Alongside her academic qualifications and business acumen, Sabine is also a trained Executive Coach and certified to perform a wide range of psychometric tests. In her own words, she is “Driven by a passion to get down to the nuts and bolts and create real, long-lasting change in organisations.”
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