Nine ways to enhance the performance of your directors.
Last week, we discussed key findings from a first-of-its-kind global study conducted by Protiviti, BoardProspects and Broadridge that reveals opportunities to improve board governance and performance. Based on these findings, we offer the following calls to action.
Address underperforming directors. Our survey noted that only 58% of directors and 36% of C-suite leaders agree that board members falling short of expectations are addressed in a constructive manner. There is no place in the boardroom for underperforming directors who are unable to demonstrate the capacity to improve their performance. The self-assessment process, as recommended below, should encourage candor in identifying opportunities for individual directors to improve. If improvement is not possible for certain directors, steps should be taken to offboard them. Accepting underperformance or waiting until the age or term limit is reached can be detrimental to board effectiveness.
Address obstacles to organizational growth. The survey identified five critical obstacles to organizational growth over the next three years: recruiting, retaining and skilling talent; access to capital and/or liquidity; new and emerging technologies; economic uncertainty around central bank monetary policy, inflation and rising labor costs; and rapid change from disruptive innovation. Also noted by the survey as areas requiring more board focus were digital transformation and organizational culture. The question arises as to whether the board’s activities are sufficiently focused on these matters.
With respect to talent acquisition and retention, there is a need for focused strategic conversations regarding the shortage of talent and skilled labor as well as leveraging corporate culture as a competitive advantage from a recruitment, reskilling, retention and innovation perspective. The board should also position itself to challenge conventional thinking and assist management in transforming customer experiences and disrupting long-established value chains. In today’s technology-driven markets, disruption occurs in many ways — new business models, rapid product innovation, changing customer value propositions and disintermediation of distribution channels. Companies can either lead the way or be swept away.
Sharpen focus on crisis management. Our survey suggests a need for a stronger board focus on crisis management, as new and existing geopolitical, economic, environmental and social crises could arise and/or conflagrate. Furthermore, the results of national elections occurring all over the world during 2024 could lead to disruptive impacts extending beyond the voting countries’ borders, with particular emphasis on the United States.
Don’t forget cybersecurity issues. One more area identified by our survey requiring additional board time and attention is cybersecurity. The ever-changing cyber threat landscape and growing geopolitical tensions are likely the reasons for this finding.
Ensure the board is aligned with management on organizational resilience. With respect to the organization’s preparedness for certain risks, particularly talent management, organizational culture and third-party risk, executive leaders rate the organization’s preparedness lower in these areas than do board members. Accordingly, directors should seek to understand the concerns of their company’s senior leaders, particularly if those leaders request more resources and support to meet expectations (e.g., obtain sufficient information from management regarding preparedness and response plans). If the board’s assessment is significantly more favorable than management’s, a disconnect in boardroom conversations may result.
Emphasize director preparedness and engagement. According to the survey, C-suite respondents are less likely to agree that board members come prepared for each meeting and are constructively engaged during meetings. Therefore, the board’s charter and/or corporate governance guidelines should establish criteria for director performance that sets forth clear expectations for meeting preparedness and engagement as well as criteria for overboarding. If there are issues with preparedness and engagement, the CEO should inform the board chair or lead director and a plan should be developed to improve in these areas. If the focus is on certain directors, the board chair or lead director should counsel those directors.
While all directors should periodically assess their commitment and ability to allocate the necessary time and energy to board service, the street runs two ways. Information overload can contribute to a perceived lack of director preparedness. Management can facilitate preparedness by being selective and timelier in submitting pre-meeting materials to the board. The board should set the tone by being clear in its expectations of management.
Engage directors in shaping the board agenda. Board members agree less frequently than C-suite executives that they are able to influence the agenda in advance of formal board meetings. When planning for future meetings, the board chair or lead director should consider involving board members in setting the agenda. Recommendations could be solicited in executive session, which elevates the level of director engagement.
Self-assess board performance. At least annually, the board should conduct a robust self-assessment of the performance of the full board, each board committee and each individual member of the board to determine whether they are functioning effectively. The self-assessment process should be conducted on a confidential, anonymous basis and ensure that the board and each committee are staffed and appropriately led, individual board members are effective in fulfilling their fiduciary obligations and the oversight processes in place are contributing value. The process should encourage candor and be rooted in trust and transparency with an eye toward continuous improvement. It can be supported by written questionnaires, one-on-one interviews and group discussions facilitated by a member of the board or a third-party adviser. The board should vary the approach over time to encourage director engagement and address key themes or topics, as identified by the board chair or lead director.
Periodically evaluate composition and onboarding criteria. Our survey indicates that skill and experience, industry knowledge, technology savviness, knowledge of other industries and gender diversity are attributes boards are primarily looking for as they evaluate new director candidates. Racial diversity and board tenure are two other factors that received recognition. These findings point to a need to assess whether the currency, experience and diversity of thinking in the boardroom are sufficient. Recommended changes should be incorporated into a board composition skills matrix (or its equivalent) summarizing the skills and expertise that the board needs to oversee the organization effectively. Changes to the board composition skills matrix (or its equivalent) should be mapped by the governance or nominating committee (or its equivalent) against the skills possessed by each board member. Any gaps should be considered when evaluating new director candidates.
Next week, we will explore five areas every board’s agenda should address.
Read the full report Global Board Governance Survey | Protiviti United States and watch a recording of our webinar discussing the results Views on Global Board Governance — Where Directors and C-Suite Leaders Align and Diverge (on24.com).
Jim DeLoach and Frank Kurre are managing directors of Protiviti.
About Protiviti
Protiviti (www.protiviti.com) is a global consulting firm that delivers deep expertise, objective insights, a tailored approach and unparalleled collaboration to help leaders confidently face the future. Protiviti and our independent and locally owned member firms provide clients with consulting and managed solutions in finance, technology, operations, data, analytics, digital, legal, HR, governance, risk and internal audit through our network of more than 85 offices in over 25 countries.
Named to the 2023 Fortune 100 Best Companies to Work For list, Protiviti has served more than 80% of Fortune 100 and nearly 80% of Fortune 500 companies. The firm also works with smaller, growing companies, including those looking to go public, as well as with government agencies. Protiviti is a wholly owned subsidiary of Robert Half (NYSE: RHI). Founded in 1948, Robert Half is a member of the S&P 500 index.
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