Ironically, though, over time, its truth is increasingly revealed. Just look at the last two and a half years. As countries were starting to open up and boards were learning to live with, among other things, the labour force and supply chain consequences of the persisting COVID pandemic, along came Russia’s invasion of Ukraine.
At one level that is a territorial dispute confined to Eastern Europe. As we have seen, however, responses by governments in other parts of the world have generated global consequences—not least for political alliances and international trade.
And, whether directly connected to these events or not, a level of inflation not seen since the 1980s has arrived to add another challenge to corporate leadership. This is on top of the impacts on organisations of rapidly changing social norms that boards were already struggling to come to terms with pre-COVID.
It is at least one, possibly two, generations since there was any kind of stability that boards and their management teams could plan for with confidence. So why do many boards continue to try to organise their work (virtual meetings notwithstanding) in ways that reflect a pattern dating back to at least the mid-20th century? When we ask why, the response is, sadly, consistent: “because we’ve always done it like that”. We are concerned that many boards seem to have a strong desire to return to deeply ingrained but comfortable and familiar practices from a different time.
In this article, therefore, we invite boards to take a ‘first principles’ look at how they go about their business and suggest several starting points for that scrutiny.
1. Induction
Let’s start with board culture and dynamics. Throughout the 25-plus years we have been helping boards with self-evaluations they have consistently rated the induction of new board members as one of their weakest governance processes. Typically it takes far too long (one to two years) for new board members to become fully engaged and effective contributors. In the meantime, the opportunity for the board to realise the benefit of fresh thinking is also lost.
A significant reason for this is that induction is typically tackled as a one-way activity. It is about the new director getting ‘on-board’ with the prevailing thought patterns and ways of doing things. This, however, denies the reality that a board is like a sports team. The loss of a long-serving player requires the whole team to pay attention to how it will adjust to the unique capabilities of the replacement
Weaknesses in boards’ induction processes are coming into sharper relief because of the expectation that boards will add greater diversity to their membership. Few boards now do not pay at least lip service to the desirability of having greater diversity among their members. In some jurisdictions greater diversity (particularly gender diversity) is a regulatory requirement but, increasingly, this is also a ‘social licence’ issue.
In this environment we see how easily boards can become dysfunctional when they fail to recognise what should be obvious—that the purpose of achieving greater diversity is to challenge the board’s established mindset, to broaden and deepen the board’s thinking. When improving diversity on your board is intentional (and even when it is not), why would you expect new directors—chosen because they can bring something different—to succumb to old ways of thinking and operating? . Consequently, it is worth approaching induction from the perspective that the addition of even just one new board member creates a new board team.
So, is your board having an honest conversation about whether it expects and welcomes new ways of thinking? Does it have both a board culture and processes that embrace this objective constructively and proactively?
2. Board meeting frequency and regularity
Almost all boards meet regularly: monthly, two-monthly, quarterly or some other period. Why? While many corporate constitutions state the minimum number of times a board must meet each year, they rarely, if ever, specify when those meetings must be held or what the length of time between meetings should be. Boards should be questioning whether a regular ‘same old, same old’ meeting cycle is necessary or suited to the matters they should be dealing with.
Responses to the constraints imposed on boards’ meeting options by COVID resulted in much experimentation. Thanks to the video technology developed in a rapid response to pandemic-related movement constraints, boards can now hold virtual meetings at the proverbial ‘moment’s notice’. So, there is no logical reason boards should not meet as and when they need to—and for the length of time needed to do the work central to board-level leadership.
If explicit at all, the rationale for the tradition of boards meeting at regular intervals almost always references the board’s role in budget monitoring—specifically the need to review the previous month’s financial results against the budget. Although boards can influence only the future, this has historically led to board meetings overweighted with meeting materials and discussion directed at what has already happened, which the board can do nothing about. The paradoxical fascination with approving (or not) something that is a matter of history should be a sufficient alert that something isn’t quite right. To the extent this rearward facing activity has a future dimension at all, it tends to be about the actions that may be needed before year end to achieve the desired result. Inevitably this compounds the problem by drawing the board into management’s domain. This is usually at the expense of the matters the board should be dealing with.
For many organisations, especially those whose business ebbs and flows with seasonal activity, it makes little sense to try and monitor organisational performance on a regular meeting schedule. Organisations with a project or contract delivery mode also have uneven income and expenditure patterns. Many charities have revenue that is not only lumpy but unpredictable. For those kinds of organisation, it is time to look more closely at when information directly relevant to the board’s responsibilities becomes available. If reports on the same parameters every month produce little of value to the board, why have a monthly meeting that is primarily for monitoring purposes? And it’s not just a matter of waiting longer for more meaningful reports. There are some situations (eg, solvency and going-concern situations) where almost continuous board scrutiny may be needed.
Historical influences on when board meetings were held, such as the time taken for accountants and their teams to produce month-end financial reports, once determined when boards could (and should) consider financial information. Depending on the nature and scale of the business, many now have computerised financial accounting systems that enable real-time reports to be generated for board scrutiny when required. Directors may soon have direct access to accounting and other information systems and, within appropriate constraints, will be able to make direct inquiries as they judge necessary, outside the formal management reporting cycle.
To facilitate both formal and informal review, financial and other performance criteria should be well defined, well understood, and available to the board in a graphed form that allows instant interpretation of whether a performance measure is on or off-track. If it is on-track (or off-track within approved limits) there is no need for detailed reporting or discussion at the board level, let alone a meeting to ‘note’ or ‘receive’ the information. While much lip service is paid to exception reporting, its potential is seldom realised.
So, we have a world that has changed significantly since the traditional pattern of board meetings was set. No doubt a regular schedule of meetings set in advance is convenient for directors in terms of scheduling other commitments. Also, for management in knowing when they must produce routine reports. However, we now have the means to enable boards to meet (virtually or in person) when it best fits the expected cadence of the business, or to respond to an unexpected or abnormal situation.
One board we are familiar with combines a planned schedule of longer face-to-face meetings (not always at regular intervals) with subject-specific video conference ‘sprints’ of 30-90 minutes. A variation on this approach is to use short video meetings to deal with monitoring and compliance, and longer face-to-face meetings for more cognitively demanding matters and planned strategic thought.
What changes should your board consider to improve the way it organises itself to discharge its stewardship responsibilities and its duty of care?
3. Board meeting content
COVID prompted board meeting changes in other ways. It quickly became apparent that video conferencing had its limitations. For example, the kind of long meandering meetings to which Parkinson’s law applies—‘the work expands to fill the time available’—were replaced by much sharper, better focused and time-bound agendas.
This also prompted boards to take control of their own meeting agendas and be more ‘strategic’ about the matters they were prepared to use their meeting time for. This new level of awareness and responsibility for the content of their meetings (a matter mostly left to management in the past) must not be lost now that boards are able (and willing) to meet face-to-face again, with the possibility of longer meetings.
The critical vehicle to support this transformation is the annual agenda or board workplan. This allows boards to think carefully about matters that need their attention and when they need to be dealt with to get the sequencing and prioritisation right. Some further thoughts on board focus can be found here. A particular challenge for many boards is learning to distinguish between what is urgent and what is important. A useful tool for the board’s analysis is the so-called Eisenhower Matrix.
The effective use of a board workplan to prioritise the matters to which the board will allocate its time and attention will make substantive strategic dialogue the central element in every board meeting. This will crowd out the time most boards spend ‘in the weeds’.
One outcome of developing a board workplan is that some boards will decide they need to put in more time. Our in-house research suggests a typical board spends between 40 and 60% of its time on matters of no consequence at the board level, so the need to find more time is not inevitable. A far better return on the board’s current time commitment will be possible for many.
Better work planning to bring substantive matters for board attention to the top of the pile (see our later comments on strategic planning) point to the traditional annual board strategic ‘retreat’ having had its day. The board ‘away day’ as it is sometimes also called does, however, have some value if it is repurposed to focus on board and director performance evaluation and on developing the kind of board workplan just referred to.
Having a longer-term plan for allocating board time and attention is also helpful in planning successive board meetings. The plan (agenda) for every board meeting should ensure it deals with the most important matters first. For some boards, this will require a basic rethink of their whole meeting approach. Many others are already experiencing the benefits of a departure from the tradition of front-loading meetings with procedural matters and activity reports.
Is your board intentional about the substantive, value-adding work it should be doing? Or is it just drifting from one meeting to the next, attending to the crisis of the day or whatever else management selects for the board’s attention?
4. Management reporting
The form and content of the raw material for board meetings is critical to a board’s effectiveness. Few boards are not critical of the excessive volume and inadequate quality of what is served up to them. But management teams are not the main problem here. It is boards themselves. Although training staff to produce better, more concise board papers with clearer analysis and recommendations would be valuable, too often boards have inadequately defined what information they need to do their job.
Boards are also generally too willing to indulge fellow board members who regularly ask for additional information without regard for its governance relevance or the cost of producing it. For some directors the unnecessary volume of data is a kind of ‘comfort blanket’. But, as John Carver sagely noted:
There is nothing wrong with boards getting all the incidental information they want, but there is something very wrong with the delusion that they are, at that time, doing their job.
The angst about management accountability that many boards suffer from has led to a proliferation of board-created or mandated performance measures, many of which have done little more than create perverse incentives. For most organisations, a relatively small number of performance criteria will suffice. And these will not always be easily, if at all, quantifiable. Performance assessments are as much a matter of judgement—‘art’ as much as ‘science’.
So, if your board’s natural inclination is to criticise management for the quality of the board meeting pack, might you think it is probably time to look in the mirror?
5. Board and director evaluations
Continual performance improvement is close to ‘holy writ’. However too many board and director performance evaluation exercises do not warrant the effort, being little more than box-ticking exercises that lack any genuine commitment to finding ways for boards and their members to become more effective.
Check your board’s processes for the following essential components. They are inter-related and mutually reinforcing:
- A board champion for the review. Preferably this is the responsibility of the chair, but it can also work well if another director has an explicit mandate to guide the review and the implementation of a resultant action plan
- Independent facilitation is not needed every year, but boards will get greater value if every two or three years the process is designed and facilitated by someone outside the organisation with specific experience and expertise. We would expect a thorough process to include interviews with each director and staff who know the board and how it goes about its work.
- An action plan is essential for an effective evaluation process. Boards that fail to go ‘up a gear’ after a review have done worse than just waste time and money; they have signalled to management and other stakeholders that there is one standard for the board and another for everyone else.
So, in looking to performance accountability, ask yourselves: ‘Is my board setting a good example or simply going through the motions?’
6. Strategic Planning
Finally, some thoughts about why boards need to rethink their role in what is loosely referred to as ‘strategic planning’. Most strategic plans have little value at the board level. We have written at length elsewhere on this, as have others. For example, John Carver concluded that ‘…most of what boards do either does not need to be done or is a waste of time when the board does it. Conversely, most of what boards need to do for strategic leadership is not done.’ The near universal truth of that observation was reinforced by Roger Martin: ‘I would argue that 90 percent of the strategic plans I've seen in my life are really more accurately described as budgets with prose.’
Budgeting is not strategic planning; it is just allocating financial resources to achieve desired results. As another perceptive observer of strategic plans, Richard Rumelt, said: ‘Most corporate strategic plans have little to do with strategy. They are simply three-year or five-year rolling resource budgets and some sort of market share projection. Calling this strategic planning creates false expectations that the exercise will somehow produce a coherent strategy.’
It’s also a good bet that there is a significant gap between what your board has said (or thinks) should be achieved and where the money is being spent. In part that is because rethinking priorities at the board level can done in short order while it usually takes far longer to realign staff and other resources to achieve new priorities. For further discussion of the problems arising from board involvement in the budgeting process see here.
Historically, most strategic plans have been mainly about getting from the current state of organisational performance to a better state. There is nothing wrong with that, but getting from A to B is largely a managerial task. Boards should leave their management teams to make plans that focus on the actions they will take. However, a necessary proviso is that boards should first create a guidance framework within which that planning (and implementation of the plan) will be done. Boards have a key front-end role: to define organisational purpose (why it exists and who receives the benefits of its products and services); the outcomes that must be delivered to fulfil that purpose; and the priorities among those outcomes for the allocation of resources (capital, board and management time and attention, etc).
Of these, defining organisational purpose is by far the most important task, from which everything else flows. If yours is the kind of board that has spent hours, perhaps days, agonising over every last word in a ‘mission statement’ you should reflect on the wisdom of Scott Adams’ Dilbert. To paraphrase Dilbert on mission statements, they are typically no more than ‘a long awkward sentence that demonstrates the board’s inability to think clearly.’
One other key element to the board’s work complements its direction-giving responsibility—putting in place a wraparound control framework (largely a delegation policy) to specify the situations and circumstances that are unacceptable to the board (particularly those that might threaten the achievement of the desired outcomes). In most organisations, more intelligent and extensive delegation is needed to free up board time for the really important conversations it must have.
Has your board created this kind of framework for management action? If not, why not?
We are conscious that—in the interests of greater board effectiveness—we have referred to a wide range of possible interventions. If the primary message of this article is clear, however, we are happy to let Bob Dylan have the last word.
Come gather around people, wherever you roam
And admit that the waters around you have grown
And accept it that soon you’ll be drenched to the bone
If your time to you is worth saving
And you better start swimming, or you’ll sink like a stone
For the times, they are a changing
