Evaluating the Governance Capacity of America’s Boards - Boardroom News & Insights

Evaluating the Governance Capacity of America’s Boards

Today’s boards are under more scrutiny now than they have ever been. Yet, the role of a company’s board is also more complex than ever before. 

Boards must ensure the high performance of the management team, work diligently toward long-term company health, and act in the best interests of shareholders. Additionally, they must remain aware of — and sometimes fight for — the interests of employees, customers, supply chain vendors, and even the community at large. 

With so many responsibilities, how can you possibly know whether a company’s board is effective or not? The best way to find out is to create an objective system to measure a board’s ability to govern effectively — that is, to understand complex business issues and take action on them when needed. 

Creating that system requires an in-depth understanding of what makes an effective board director and how the right board composition can lead an organization to success.

The Superiority of Business Acumen

Many believe that having business smarts is the single most important determinant of the success of an individual director or a board as a whole.

Understanding Board Effectiveness as the Key to Good Governance

This one trait gives directors the confidence they need to lead in critical times — engaging the CEO, management team, and other directors in important conversations about matters that greatly affect the business.

Unfortunately, fewer CEOs and business executives are making it onto the boards of top companies. This is happening for a few reasons, including the ever-increasing demands on directors and a general sentiment that CEOs should have as few outside board commitments as possible. 

What’s even more unfortunate is that this lack of CEO and executive participation reduces a board’s overall governance capacity and results in even more mistrust from stakeholders and outsiders.

It’s important for boards to work on building their pipelines with candidates of high business acumen. Whether good decision-making happens in the boardroom will depend on it.

Critical Traits of a High-Capacity Board Director

While business acumen and success as a senior executive is crucial, it isn’t the only thing that matters for governance capacity. Governance is a highly nuanced role that is equal parts art and science. 

For that reason, it’s important to give weight to other traits that boards should hold in high regard when evaluating current board members or initiating a search for a new candidate. 

Communication Skills 

While it’s important that board members think before they speak and articulate their positions well, it’s just as essential that they avoid trying to take over any boardroom conversation and stay away from contributing to discussions on topics they have no expertise in. Knowing when to speak and how to build on others’ commentary is key.

People Skills

While a board member doesn’t have to be an extrovert, they do need to be able to build relationships on their own. This usually means they need to be a likable team player who supports others in their success.

Relevant Experience

Demonstrated competency and success in executive business roles are prized in the boardroom. Members should already have business experience covering a broad range of issues, and they should know how to understand and evaluate risk and handle problems in a mature and logical fashion.

Integrity and Honesty

Every board member must operate ethically at all times, with no exceptions. They should not only know the right thing to do but also have the discipline and character to do it with consistency. They should always tell the truth, be fair, and keep board business confidential.

Humility

While being a board member can be rewarding, it’s crucial that board members are in the role for the right reasons. They will be constantly putting others’ interests before their own, so they must keep their ego in check, leave their biases behind, and adjust themselves to the requirements of the situation at hand.

Supportive Engagement

Board members should come to every meeting prepared and well-informed, learn how to challenge management without putting them down, keep asking the right questions, and take sensitive topics offline when needed.

Confident Courage

An effective board member takes initiative when others won’t. They speak up when they don’t understand or when they sense something is amiss. They are courageous enough to state their views out loud but confident enough to know they may not be right. They take feedback when they’re wrong.

Understanding of the Role

Board members should remember that they are not the CEO of the company. Therefore, they should concern themselves with the bigger picture and adopt the goal of making sure the CEO has the resources needed to run the company well.

Curiosity

The ideal board member never loses their love of learning new things. They stay interested in what goes on in the business and are observant of how others approach and solve problems. They look at everything they do as a learning experience. 

Strengthening Your Board’s Governance Capacity

Strong governance capacity provides a solid foundation for any corporation. For boards looking to increase their capacity to lead an organization to success, it’s important to do the following:

  • Evaluate whether current board members possess the necessary business acumen and effective director traits to get you to your goal
  • Design your ideal board profile based on what the company needs to experience continued success or move in a new direction
  • If the board isn’t big enough, add directors who have proven business acumen to raise the capacity of the overall board
  • When directors retire, replace them with those who display business acumen and the critical traits needed to be an effective board director

Though these steps may seem simple, it’s important to realize that it takes a great deal of commitment and tenacity to carry them out well.

Executive Track Records Determine Governance Effectiveness

There’s no denying that the role of a board of directors in a public company has never been more complicated or more criticized than it is today. In the face of mounting pressures, boards must ensure that all directors have what it takes to lead well and maintain a high governance capacity. 

Not only is business acumen required for this purpose, but so are “softer” skills, such as communication, likability, humility, integrity, and curiosity. Above all, board members must make a commitment to identify and shore up the weaknesses of the unit. This ensures maximum effectiveness and moves companies closer to outcomes that benefit shareholders and satisfy stakeholder needs.

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