Six Lessons from Board Evaluations in North America
Here are six common lessons from Board evaluations conducted with public, private and not-for-profit organizations in North America.
The majority of Boards over-rate their governance competency. They do this because:
Directors want to be supportive of their Board – and each other. They are frequently reluctant to be fully objective about issues they see regarding the performance of the Board.
Many Board written evaluations are too long. This results in box-ticking and lack of serious reflection by Directors.
Many Board evaluation rating scales are too broad. This results in limited differentiation between the choices and too much concentration at the high end of the scale.
And finally (and very frankly) – many Directors lack the knowledge and competency to evaluate their Board effectively. Governance expertise is not the reason most Directors are invited onto a Board.
Unfortunately, the most common outcome of a Board evaluation is nothing. One key reason for this is that the over-rating that occurs provides little incentive to fix anything. When everything is well-rated, it’s not really clear what the Board should focus on to improve.
Lack of clarity about the Board’s oversight role is a fundamental problem that almost all Boards face. When surveyed, very few Directors on the same Board provide a consistent definition of their governance role. This is a key reason that governance fails so often. Too often, Boards are focused on the wrong issues.
Straying too far into operations is the fear that all Boards face. Somehow ‘nose in, fingers out’ has become a Board mantra. Unfortunately, it’s a mantra with few helpful clues on how to actually execute.
The primary risk most Boards focus on is financial. However, financial risk tends to increase AFTER legal, market and operating risks are already impacting the organization.
The composition of most Boards is poorly aligned with the risks and strategies their organizations are now facing. Common Board composition deficiencies include technology, cyber-risk, marketing and HR. Finance, legal and operations tend to be over-represented.
A Board Evaluation Should Start with Understanding of Board Role
Since governance failure is common – much more common than most Directors realize – it’s important that Board evaluations accurately reflect the Board’s governance competency. Doing this is simple: start by evaluating how well the Board understands its role by asking Directors to define two things:
What the roles of the Board is
What their role as a Director is
We’ve seen Board evaluations where Directors who rated themselves 4 out of 5 in understanding their role all provided different definitions of what that role is.
A common understanding of the Board’s role is vital.
Without a consistent understanding of the Board’s role it is very difficult for any Board to be highly effective.