On paper, a Board of Director's core mandate is to oversee the strategic direction of an organization, represent and protect the interests of its shareholders and stakeholders, and monitor and control the company's functions. In practice, this mission can be clouded by a variety of challenges arising from:
"We've sat in a lot of boardrooms and worked alongside a large number of boards and committees, and while the intent is always to bring value to the organization, these common challenges and themes continue to present themselves time and time again," says Nick Rolfe, Partner, Internal Audit Risk and Compliance, KPMG in Canada.
Acknowledging and addressing those familiar boardroom pitfalls is key to unlocking the full value of an organization's board and achieving better engagement from everyone at the table.
An effective and efficient governance structure is critical to any organization's success as it enables the board and senior management to have effective oversight of the organization.
There are several factors that contribute to an ideal structure, not the least of which is a board's ability to draw from a wide range of skills and experiences.
"There's a heavy emphasis on board diversity today – and that's a good thing. However, it's important to recognize that diversity takes many different forms," says Rolfe. "Ultimately, you want a board that reflects the community and customer base which it serves; especially in places like Toronto, where an organization might be operating in the midst of an incredibly diverse population."
On top of that, Rolfe adds, organizations benefit most from boards that possess a diverse set of expertise and professional skills in order to effectively oversee – and understand – all aspects of the business, "It is important to identify the skills needed to effectively govern the organization and then select individuals that give you the breadth of insight and perspectives you need."
The size of a board can also influence its performance. As many who have stood in crowded boardrooms can attest, having too many 'chefs in the kitchen' can make meetings unwieldy and long, and pull focus away from top strategic priorities. Moreover, large board rosters can foster apathy among members who believe their presence won't be missed.
"We've seen boards where members don't show up to meetings or dial in via conference calls because they assume there are enough people around the table that their input wouldn't make a difference," Rolfe recalls, insisting, "From our perspective, we'd rather see fewer people showing up for all meetings as opposed to half showing up for 50 percent of the meetings. Based on recent engagements, boards of between 12 and 20 people provide the ability to be nimble while still containing the right mix of skills. However, we have seen boards as large as 35 which make it incredibly difficult for any chairperson trying to ensure everyone is included and has a chance to contribute.
Boards can also lose momentum by delegating too many big decisions to committees and sub-committees. This strategic splintering can ultimately delay the decision-making process and slow momentum on larger initiatives.
Overall, says Rolfe, organizations are better served when boards are populated by members with a diverse spread of expertise and experiences who can focus on the big picture, "Boards aren't there to get tied up in administrative decisions or spend hours debating matters of low importance. They're there to bring people together on top strategic matters or significant risks to the organization."
Boards are at their best when meetings are driven by top organizational priorities and risks. Turning a spotlight on the latter, however, requires timely, relevant, and accurate risk reporting from all levels – which isn't always guaranteed.
"We often see board members and committees receive summaries of risks that impact the organization, but they're getting no comfort or assurance alongside those summaries that risk management processes or controls are in place and operating effectively at the frontline of the organization."
Embedding more training and awareness around effectively managing and reporting risks is, therefore, key. That means enhancing the processes around which risks are recorded and reported by frontline staff, providing a clear escalation and cascade process, and ensuring all departments and divisions are sharing the responsibility of risk oversight. Consistency of process across an organization is key where it is practical to do so.
Boards thrive on accurate and relevant information. That rings especially true in regards to quality and performance reporting, which is of no value unless board members can be certain the information in front of them is dependable.
"One thing I ask during our governance reviews is what comforts or assurances board members have that the information being presented is accurate and reliable," says Rolfe. "You can't be making critical decisions with bad data, so that's where data quality audits and other measures can give boards more confidence the data they're getting is robust and accurate so they can be comforted the data is reliable."
The relevancy of that data is equally critical. Here again, he adds, it pays to ensure the type and quantity of information being presented at the board level is meeting member requirements; "The message we get consistently from corporate boards and committees is that they aren't being presented with the right level of information to inform their organization. Instead, they're spending time on the details of every performance metric and getting too operational in nature."
It can go both ways, too. Working with too few key performance indicators (KPIs) or underdeveloped performance metrics can impede a board's ability to make timely and impactful decisions. Reversely, being weighed down by a large volume of performance metrics can dilute the board's focus.
"It's difficult to find that right balance of KPIs and performance metrics, and it's rare to find organization's that have found that sweet spot," adds Rolfe. "We've seen both ends of the scale – boards presented with 50 to 60 metrics who don't know where to start the conversation and boards presented with very few metrics who are unable to have any meaningful conversations." It is key for the board to spend time working with management to determine what the right metrics are to allow them to have effective oversight of their organization.
There are a number of reasons why boards lose their efficacy over time. Fortunately, there is much boards can do to re-engage its members, re-focus its efforts, and provide even greater value to their respective organizations.
"It's important for board members to reflect on what practices are in place for their meetings, if they have assurance that risks are being effectively managed, and if they're getting the right information to understand what's going on in their organization so they can check progress against the strategy," insists Rolfe.
It's also beneficial to bring partners into the fold who can provide new perspectives and help embed leading board practices, "By performing a governance review, organizations like KPMG can help boards introduce the right processes, practices, and mechanisms to help ensure they are fulfilling their roles and steering the organization in the right direction."