How Effective Is Your Board? The Answer Might Surprise You
December 21, 2020
In my reading list this past week was a new study commissioned by PwC and the Conference Board: Board Effectiveness: A Survey of the C-Suite. To say it was an eye-opening read would be an understatement.
As a current board member for both for-profit and nonprofit boards, I was taken aback by the differences in opinion the survey exposed. While the survey was obviously targeted at large corporations, the issues raised are certainly a germane discussion within the captive insurance arena as well. The questions captive boards should be asking are, How effective are we as a board, and does management agree with that self-assessment?
The introduction to the report, released December 9, 2020, states as follows.
For almost two decades, PwC's Annual Corporate Directors Survey has compiled board members' views on governance, their own performance, the performance of their peers, and the performance of their management teams. For 2020, PwC has joined with The Conference Board to turn the spotlight on management's views. We surveyed over 550 public company C-suite executives to gather their opinions about the performance of their company's board of directors. And the results surprised us.
So, what are the surprises that PwC, the Conference Board, and yours truly find so startling? While management gives the board high marks in certain areas such as understanding company strategy, key business risks, the competition, company culture, and talent development, 40 percent of the survey respondents felt their board was only doing a fair or poor job in terms of overall effectiveness. This view was most widely held by information technology executives, with nearly three-quarters giving their board low marks, while chief executive officers and chief financial officers were the opposite with only 25 percent placing their boards in the fair or poor range.
From my perspective, this result appears to be highly correlated with another result. According to the survey, 82 percent of the survey participants feel at least 1 board member needed to be replaced, and 43 percent think 2 or more directors need to go. Major reasons given were director age and overcommitment to multiple boards.
Given these findings, as a captive insurer board, have you ever asked your management team what they think of your own effectiveness? Speaking from personal knowledge, I can attest it is not something I have ever seen done. In a previous article, I talked about the need for board self-assessments, but it never occurred to me that these should include what's commonly known as a "360-degree assessment." It makes perfect sense as I sit and write this, but I also recognize the pushback it would likely receive from most board members, and I mean this universally.
Think about the type of individual that typically populates a board of directors. They tend to be self-motivated, high-achieving individuals. Unless they are highly self-aware, most will assume they are doing a great job as a board member. To be told differently, especially from executives who may not even sit on the board, creates a fair amount of dissonance. What the PwC/the Conference Board report does not say is how many executives shared their own company's results with their boards. My suspicion is the number is fairly low. The governance expert in me recognizes this as a real weakness in board governance and something that should be corrected.
There were two other findings in the report, which also surprised me. First, only 37 percent of the respondents believe their board members show up at meetings fully prepared and, second, management wants board members to be more fully engaged, with only 9 percent thinking the board oversteps its bounds.
Think about the first comment: only 37 percent of the executives believe their board members show up prepared. This survey was conducted with large Fortune 500 companies. Their board members are drawn from the upper echelons of business, government, and academia. For many, their board compensation alone would put them in the top 10 percent of all wage earners. Yet, they are viewed as not being prepared for a meeting? And, while I am sure many board members would disagree with this finding, it really gets to a fundamental governance question: What constitutes being prepared for a board meeting. Here are my thoughts.
- Read and understand the agenda. If there are specific topics that you are unsure about, call and discuss them beforehand with the board chair or CEO.
- Read all the minutes being presented, especially those where you serve on the committee. Make sure they represent a fair synopsis of the meeting and discussion and correct any obvious errors either beforehand or when they are voted on.
- Read all the materials presented by management. The assumption is that this information is thought to be critical by your management team for the board to know. If the information is new to you, or if parts are unclear, make notes and be prepared to ask questions. Don't be afraid to seek clarification prior to the meeting.
- Do your own due diligence and self-education. If there are critical topics on the agenda, spend time before the meeting researching these issues so you are well informed when the time comes for a discussion. Don't assume management will do this for you.
My suspicion is the second item, engagement by the board, is highly correlated to meeting preparation. If as a board member you come to a meeting unprepared, it is extremely difficult to be actively involved in a discussion. Therefore, your board engagement suffers from your lack of self-preparedness. So, ask yourself as a captive board member, When you show up for a meeting are you as prepared as you should be? If not, why not? All too often, we kid ourselves with convenient excuses for why we aren't prepared, but the fact of the matter is if you are not willing to put in the time necessary, then you shouldn't serve on a board.
I have only skimmed the material presented in the report, so I would encourage all interested readers to download a copy and read it in its entirety. Then, if you have the fortitude, ask your board to allow management to perform an assessment of your performance. Hopefully, you will be pleasantly surprised and not the way I was surprised when I read this material.
December 21, 2020