Corporate governance is most effective when Directors share a common understanding of what is corporate governance, the Board’s governance role and the key building blocks for achieving effective corporate governance.

This presentation has been used by Associations, private business and not-for-profit Boards of Directors to define corporate governance and the role of the Board of Directors.

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Board of Directors Orientation Content Summary

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Title slide: Board of Directors Orientation. Prepared by Jim Crocker, Chair, Boardroom Metrics

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Governance failures. GE. Volkswagen. Wells-Fargo. Enron. Many others. Governance fails regularly. Often it is not reported as a governance failure. Frequently, it appears as a management failure. However, oversight of management is the Board’s responsibility.

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Governance effectiveness. Governance is most effective when everyone on the Board shares a common understanding of the Board’s role. What we find in our work: few Directors on any Board share this common understanding. Governance has been overcomplicated to the point of ineffectiveness. Governance is not that complicated.

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The Board’s role. There are three elements of a Board’s role: 1) identify and mitigate risk 2) validate and oversee strategies for mitigating risk and achieving the organization’s mission 3) performance manage the CEO. Time spent on anything not related to these three elements is a waste of time. It confuses Directors and decreases governance effectiveness.

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Title Slide: What are the building blocks of an effective Board?

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Five element of Board effectiveness: 1) composition 2) information 3) leadership 4) process 5) dynamics

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Building Block 1: Board composition – should reflect the skills and expertise required for the Board to perform its role including those who understand critical elements of risk, strategy, and performance management. Director competency is a growing trend in Board effectiveness.

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Sample Board Skills Matrix. The Board skills matrix is a common tool for assessing what skills and expertise the Board requires and where there are competency gaps on the Board to fill those requirements. To use the skills matrix begin on the top axis to identify the ideal skills and expertise for the Board. Then work down the left column identifying where current directors fit and where there are gaps. This example highlights two findings: 1) nobody on the Board fills the technology requirement 2) Director D doesn’t fill any of the identified requirements (however, they may fill some role not identified in this example)

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New Director Wishlist. From Spencer Stuart 2016 Survey. What it shows is the type of experience/expertise/makeup Directors would like to see added to their Boards of Directors.

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Building Block 2: Decision making information the Board receives. Pressures on a Board – 1) they must get info to help them with risk, strategy, performance management 2) they can’t be overloaded. Solution: only give them the right information.

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The right information: 1) on risk – legal, financial, market, operations 2) strategy info on mitigating risk, achieving the organization’s mission 3) performance information on targets, results, achievements

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Building Block 3: Board leadership – including the Board Chair and Committee Chairs must be competent, experienced

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Required Board leadership capabilities include understanding governance, governance process, leadership, and knowledge of the business

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Building Block 4: Board Processes – effective Boards are supported by effective processes that support knowledge gathering, decision making, follow-up and oversight of execution

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Key Board processes include: 1) distribution of information – in time for Directors to assess and make conclusions 2) Board meetings that are focused on risk, strategy and performance management – many Board meetings are NOT 3) CEO and Board Effectiveness assessments that help the Board oversee the operation and their own governance effectiveness 4) how the Board interacts with management – for Boards that are too deep in the operation, defining this process is critical for ensuring a focus on oversight

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Building Block 5: Board dynamics – in addition to skills and competency, Directors must be able to work together; they must be able to respect each other, even if they disagree

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Key Board dynamics include respect, objectivity and collaboration. We have added humility and paranoia. When things are going well Boards can lose sight of what can go wrong. It’s actually very common. Boards must stay humble and paranoid so that they are not surprised by reality.

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Title Slide: Measuring Board Effectiveness

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Sample Board Evaluation Tool. Boardroom Metrics provides some simple, easy to use tools for evaluating governance effectiveness. Over time we have observed that many Boards over-rate their own effectiveness. This is especially true when Directors lack a common understanding of their role and what it is they are evaluating. This can be corrected by also have an outside expert assess the Board’s effectiveness.

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Assessing Board Impact. We all like to know we’re making a difference. We’ve found these three questions to help a Board evaluate what impact it’s having. For example: if there was no Board, what would be different?

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Thank you. Boardroom Metrics has a lot experience helping Boards simplify their approach to governance so it is more effective.

 

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