Board performance

How can all boards perform better?

Reflecting on the current environment, I believe there is a role for boards to reaffirm their social licence to operate and to address the lack of trust the community has in business (and in institutions more broadly). The business sector can do better in demonstrating its important role in society, engaging with communities and recognising concerns. Diversity is one area which is a missed opportunity for many boards. Boards which lack diversity are likely to fail to deliver optimal outcomes.

How important is the role of the chair?

Leadership matters. Strong leadership by the chair is important. The chair has the most direct relationship with the CEO and can assist in the flow of information from the board to the CEO and vice-versa. A good chair will be open and inclusive and encourage directors to share their expertise. The chair also manages the tone of the board meeting and discussion.

Equally, a poor chair can fail to guide the CEO in dealing with the board, and can fail to manage a meeting which results in important issues not being fully addressed or different points of view being shut down. Failure to manage board culture and dynamics can lead to a dysfunctional board.

Is it important to oversee business strategy as a close priority?

A key role of the board is to confirm the business strategy and monitor its implementation. Research from McKinsey Global Institute confirms that companies that operate with a true long-term mindset consistently outperform industry peers. The board’s discussion can help reinforce a longer-term perspective, rather than the short-term view often driven by the market.

Is it important to be alert to problems early?

All boards say they want to hear the bad news early, but you hear of instances when bad news is regarded as almost an inconvenience or when the executive raising the bad news is viewed as not being a team player. Boards have a key role in promoting a culture where bad news is actively encouraged to be raised – indeed welcomed - and addressed. Moreover, boards have a role to dig beneath the good news stories and ask about the exceptions, to investigate a trail of customer complaints or missed targets.

What makes some boards perform better than others?

Boards are mini-social systems and a robust and positive culture will have a significant impact on board effectiveness. Directors who are comfortable in diverse groups, who treat each other with respect and trust, who genuinely listen to other opinions and are comfortable debating issues and being challenged … create an effective board.

How can you measure board performance?

An interesting question. Increasingly boards look to assess performance using non-financial measures such as board reviews, where directors and the CEO/senior executive team assess how a board performs. Measures can include organisational and board strategy and objectives, director attributes, board behaviour and director skills.

Australian Governance Summit 2019

For me, a key measure is how well a board prepares the organisation for emerging issues. Directors bring a wealth of experience to the table, not just from previous roles but from what they see in other sectors and organisations. A good board will bring a perspective of today’s issues and emerging issues, and work with the CEO and senior leaders to think about what might be around the corner.

What current trends can help boards perform well?

It is increasingly common for boards to go into the business and visit sites, walk the floor, see operations, meet employees, meet clients and stakeholders. It is hard to really understand the business and assess how strategy is being implemented if you stay within the comfortable confines of the boardroom. Boards are also engaging around the purpose of their organisation and its social licence to operate. As Larry Fink, President of Blackrock wrote in his 2018 letter to shareholders, “to prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

High-performing boards invite people from outside their business to brief them on issues as diverse as changing demographics, climate change and energy policy, international trade relations, the digital economy, innovation and trends in social licence to operate and trust.

In your view, could failures identified by the Royal Commission have been minimised by better board governance?

The APRA Report into the Commonwealth Bank of Australia (CBA) and commentary from the Royal Commission reinforced the importance of non-financial issues and the need for boards to review their governance systems and processes. The extension of ‘can we … ‘ to ‘should we …’ is increasingly being overlaid across the decision-making framework of organisations.

Boards are considering if the purpose of the organisation is being delivered; whether the right information is coming to the board; whether there are potential unintended consequences of their organisational structure and remuneration practices; whether they have sufficient insight into culture and “how” results are delivered; whether bad news is brought forward quickly enough; whether accountabilities and responsibilities are clear and being applied; and whether the focus on positive client customer satisfaction has led to insufficient understanding of the drivers of customer dissatisfaction and other measures.