Thu, Apr 12, 2018
ByHope Stewart

For directors to make meaningful contributions in their oversight of management, they need to understand the business environment within which the company operates.  They need access to focused information relevant to the organization's strategic issues and business risks.  They can receive this information only through timely and candid two-way communication with management and other company personnel. 

At high-performing companies, directors interact frequently and comprehensively with senior management.  They participate in setting meeting agendas and do not back off from asking probing questions at board meetings.  When they need clarification about a particular issue, they know whom to contact within the company to get that clarification.

What companies gain:

  • Increased participation from directors at board meetings
  • Increased interaction between the board and senior management
  • Greater board understanding of the strategic issues facing the company

Action steps to improving the company's process:

1. Supply directors with the information they need to make oversight decisions.

At progressive companies, management and the board collectively identify the information that directors need for effective corporate governance.  For example, the board does not need reams of operational data on every business unit; poring over such data typically would be a waste of time for a busy director.  On the other hand, if a director requests more detailed information to clarify an issue or assuage a concern, management is charged with providing that information. 

Boards that apply best practices don't dwell on the past; they plan for the future.  So a board is best served by forward-looking information that frames strategic issues.  In order to provide the kind of oversight that management seeks from its board, it is essential for directors to receive timely, focused reports from management.  Directors at leading organizations understand the company's business and industry thoroughly.

2. Plan a targeted agenda before each board meeting.

At companies that apply best practices, planning the agenda for board meetings is a joint effort of both directors and management.  Conversely, a board that does little more at meetings than check off agenda items supplied by management is doing the company a disservice.

Allocating the appropriate amount of time to each agenda item is also vital.  Otherwise, a board will end up shortchanging some items or overlooking them altogether.  Once an agenda is set, leading companies distribute focused background materials to their board members well ahead of each meeting to allow them time to read and digest the information.

At some leading companies, meeting agendas are the purview of the nominating and corporate governance committee.

3. Assign each board meeting agenda item to a specific director for in-depth study

To ensure ownership of agenda items, leading companies sometimes assign one agenda item per director, asking that the director present a short synopsis of the issues surrounding that item to the entire board.  Such a practice promotes in-depth study of agenda items, motivates interaction among board members as well as between the board and the CEO, and increases directors' understanding of the issues facing the company. 

It also reveals which directors might be too busy for board service, which typically requires between 5 and 25 days per year to prepare for and attend board meetings and related strategy sessions. 

4. Schedule strategy review sessions that include both directors and management. 

By bringing directors and senior management together, successful companies encourage two-way dialogue between those responsible for implementing the strategic plan and those who will monitor progress.  A thorough knowledge of the company's strategy—as well as how it is being implemented on a day-to-day basis—equips the board to act with authority in times of crisis.

5. Provide directors with multiple opportunities to interact with company personnel.

Leading companies don't limit directors' interactions with the CEO or executive management team.  At companies that do, the board's knowledge is restricted to what management wants directors to know.  In fact, the instances of boards having been kept in the dark are all too familiar. 

To avoid this situation, progressive companies provide opportunities for directors to interact with employees at plant visits, roundtable discussions, or employee events.  Such contact encourages the ongoing exchange of ideas and information between directors and employees, thus reducing the chances that directors will be caught off guard with bad news.

Measures of success

Leading companies recognize that sound corporate governance does not always produce immediate returns.  They do not view an effective board as a quick fix. These companies understand that the outcomes of good governance are best measured over the long term.  While the following measures cannot always be directly attributed to good governance, leading companies do monitor these metrics in their quest for effective corporate governance practices:

  • How often does the board meet at company facilities rather than headquarters?
  • How often does the board collaborate with senior management in setting the agenda for board meetings?
  • What percentage of directors attends all board meetings in a given year?
  • What is the attendance rate at each board meeting?
  • How many times per year do the board and management hold joint strategy review sessions?

Performance measures are the “vital signs” of an organization. They quantify how well the activities within a process, or the outputs of a process, achieve specified goals. When performance measures are integrated into a comprehensive system of measures at all organizational levels, they can help members of the organization determine how what they are doing fits into the “big picture.”

Performance measures must be quantified to be meaningful. An act of measurement is required, one that can be performed reliably and consistently with a basis in fact, not opinion, hunch or gut feel. “Good” and “fast” are not adequate performance measures. “Number of defects” and “time for order processing” are acceptable measures—if they are controllable—that is, if the people performing the work can affect the output.

To be truly effective, performance measures must be:

  • Aligned with company objectives
  • Supportive of continuous improvement
  • Reported consistently and promptly

Performance measures are either cost-based, quality-based or time-based:

  • Cost-based measures cover the financial side of performance.
  • Quality-based measures assess how well an organization's products or services meet customer needs.
  • Time-based measures focus on how quickly the organization can respond to outside influences, from customer orders to changes in competition.

Focusing attention simultaneously on cost, quality and time can optimize performance for an entire process, and ultimately, an entire organization.

For a list of measures that can be used as a starting point for discussions about managing relations with the board of directors, see the Manage Relations With the Board of Directors—Key Performance Indicators (KPIs) tool on KnowledgdeLeader.

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