Home /

One path to board effectiveness - a board evaluation case study

One of the greatest challenges for boards and directors lies in how to define an effective board. The different contexts in which boards operate (different legal structures, not-for-profit, family owned) and the various constraints they face (constitutionally imposed constraints, institutional forces) results in boards undertaking different tasks and having different attributes. In short, board effectiveness depends on the broad environment the organisation is in, and there are alternate paths to effectiveness.

How can a board improve its performance and that of the organisation it governs? The ability of the board to fulfil its roles and responsibilities – both performance and monitoring – depends on the quality and diversity of the individual directors, the skills of each member and the effectiveness of the board as a team. The goal for any board should be to operate as a high performance board. In this article, we focus on one organisation and the path it has chosen towards effectiveness. 

Board review and action plan

The board in this case is that of an incorporated association which is part of a federation of independently incorporated member associations across Australia. It is a registered charity, with a nine-member board. There are no tenure limits on directors, so three of the directors had served long terms.

A compliance breach, resulting in a regulatory investigation made the board aware that it needed to ensure it had appropriate oversight of compliance and risk at the organisation. To do so, it commissioned us to undertake a board review.

The review used a seven-step framework, which relies on the board reaching agreement on the answers to seven key questions. While this framework is sequential, most boards will not follow such a linear process. However, at some point, each of these questions needs consideration.

Seven step board evaluation model

  1. What are our objectives? 

  2. Who will be evaluated? 

  3. What will be evaluated? 

  4. Who will be asked? 

  5. What techniques will be used? 

  6. Who will conduct the evaluation? 

  7. What will you do with the results? 
     

Before contacting us, the board had already answered a number of the framework questions. The board had decided who would be evaluated (the board as a whole). Further, the board had answered who would be asked (the directors and members of the senior leadership team). We developed the remaining aspects of the model, which included the methodology and the use of a board workshop to deliver the findings and agree the recommendations that resulted from the evaluation.
While the findings of the review cannot be discussed in detail, it is possible to briefly overview the major issues that emerged, and the responses agreed to by the board. 
 

Table 1: Review issues and responses

Area Issue Response
Role clarity
  • Differentiating the role of the board from that of management
  • Board and management to discuss and agree
  • Agreed roles documented in a Board Charter 
Strategy 
  • Board’s involvement in and understanding of strategy 
  • Develop a strategic planning and review framework to include significant strategic discussion at least twice a year
  • Review and enhance KPIs to monitor strategy 
CEO and senior management oversight
  • Lack of clarity around CEO assessment process
  • Board has no oversight of senior management
  • No focus on succession planning 
  • Document CEO assessment process
  • Board committee to have oversight of senior management performance
  • Discussion of CEO, senior executive and key personnel scheduled into board calendar 
Monitoring
  • Board reports too operational
  • CEO report format to be discussed and reviewed
  • Board and management undertake a review of the financial reporting to the board
Risk management 
  • Insufficient focus on risk 
  • Review and discuss the risk management framework twice a year 
Compliance 
  • Insufficient focus on compliance 
  • Review and discuss the compliance/internal control framework twice a year 
  • Review compliance reporting to the board
Policy framework
  • Governance policies not reviewed regularly
  • No code of conduct
  • Schedule regular program of review of governance policies
  • Develop and implement an organisational code of conduct
Networking and stakeholder engagement
  • Areas for development and improvement
  • Discuss and agree the directors’ role in networking
  • Enhance stakeholder engagement plan to ensure board is fully informed
Board composition
  • No tenure limits for directors
  • No board succession planning
  • Discuss, agree and document the maximum number of terms for directors
  • Schedule succession planning into board calendar
  • Undertake skills assessment
  • Document required skills in Board Charter
Board processes
  • Some processes and procedures not leading practice
  • Board to implement: a new agenda and a new board calendar
  • Review of board paper writing and format 
  • Review format of minutes 
Board behavioural dynamics
  • Evidence of dysfunction
  • Board to consider undertaking an individual director peer review

Outcomes

A board review is only as effective as the decisions and action plans that come out of it. Unfortunately, for many boards, once the review is over the directors’ attention moves elsewhere and any impetus for change is lost. Therefore, it is critical that any agreed actions are implemented and monitored. In this case, the board instituted an action plan (our governance road map), which is used to review the agreed steps as an agenda item to be tracked at board meetings. This is a useful format, as milestones can be established for the achievement of the action plans and progress reviewed until all agreed changes have been implemented.

The association has worked its way through many of the items shown in Table 1, including a board paper writing workshop for management and a board-management risk workshop. The response to these changes has been largely positive and the board is looking forward to the outcomes of its next board review, which will include a director self and peer-assessment, to measure its progress.

Conclusion

An effective board is one that knows and can execute the tasks required of it, irrespective of how those specific tasks vary with each board. To deliver its core responsibilities and activities, a board requires its directors to work together effectively. An effective board is also one where directors have the required competencies, are contributing appropriately and enjoy their work – a dysfunctional boardroom is not conducive to either director contribution or commitment. 

This case is an example of one approach to achieving improved board and organisational performance. If you have concerns about board performance, building an effective board for your organisation’s future should start today before it becomes a crisis.
 

Authors
Jennifer Tunny
Senior Research Advisor
Since joining the firm in 2001, Jennifer has assisted in the preparation of books and academic and practitioner articles and has played a key role in research and in the development and preparation of teaching materials used in AICD courses. She has...

What's new