23 May CDF Key Takeaways: Mastering Board Effectiveness: Assessment, Matrixes and Succession
We hope you have all had a wonderful week after the Memorial Day weekend! As always, we are providing Key Takeaways from our May 23rd breakfast meeting, Mastering Board Effectiveness: Assessment, Matrixes and Succession.
We hope this will serve as a refresher for those in attendance and as a point of reference for those of you who were unable to make it.
- Stagnant Board members
- Lack of diversity
- Tenured Board members vs. New thoughts/ideas/independent thinking
- 43% of new Board members are first time Board members
- CEOs are opting out of being on the Board
- Women comprise 22% of public Board seats nationally (only 17% in San Diego)
- Many companies are outgrowing their Boards
- Companies should set Board limits (often 3 years) with 1 optional year. These should be strictly adhered to.
- Individuals may set their own limits, stating they will only serve for “x” number of years.
- Succession planning should include age and term limits. New Board members should be chosen based on their skillsets that align with the company’s strategic initiatives (i.e. – finance, data analytics, risk, etc).
- Look at best-practices with other successful Boards
- During succession planning, look for diverse candidates, including international candidates. Succession planning should include the succession of the CEO and other senior players, as well as Board members. This will help to mitigate risks.
- Board members should continue educating themselves on their respective industries
- Select members with unique skills and experience (use a compositional matrix)
- It is a good policy to NOT have the CEO serve as Chairperson
- Ensure there are independent chairs
- Provide plenty of time for executive sessions
- Hold ANNUAL strategic planning sessions
- Require periodic changes in committee chairs
- Require effective Board assessments and quarterly follow-ups
- Provide sufficient training/onBoarding
- Require ongoing education and mentoring
Getting on a Board
- Relationships and networking are vital. Be intentional in getting out there and have a great elevator pitch. Make sure a relationship is organic and not forced or too salesy.
- If you’re currently in the C-Suite, work closely with your Board and make yourself known
- Think about what you want to do and do your homework. Look for specific skillsets to improve the effectiveness of an organization
- Sell your skillset
- If you’re on a not-for-profit Board, determine if it is a beneficial experience for a for-profit Board. Serve on a committee to get further experience
- 97% of Boards do evaluations, but some are not annual
- 28% are too soft in evaluating members
- 54% have underperforming directors
Best Methods for Measuring Effectiveness:
- Annual evaluations
- Use an outside firm to conduct evaluations (objective and experienced)
- Evaluate everyone (Do they: ask good questions, make themselves available, have the skills the Board needs, contribute? Are they: engaged, knowledgeable?)
- Be willing to increase the number of Board members if not all skillsets are being met
- Do evaluations in real-time. Self-critique
- For difficult subjects/personnel issues, use an external person to do 1:1 interviews
- Consider relevance of Board members vs. current needs
- Be cautious with sharing evaluations
CEO’s on Boards:
- Is it a conflict if CEO serves as Chairperson? It depends!
- CEO input is critical in identifying needs and strategic direction(s)
- Have separate sessions without management
- Lead Independent Director is very important in driving effectiveness
- Only 14% of Boards have a succession plan in place
- Nominating/Governance committee should review materials
- A matrix should track: skills, tenure, experience, industry experience, diversity, etc.
- 80% of Chairs are placed externally (not CEOs)
- Review succession plan annually
- High performing companies generally have more women on their Boards than low performing companies
- Boards with 3 women perform better than those with 2, which perform better than those with 1 or 0
- Age and racial diversity are also important
- Determine who will fit well with the culture of the Board. Is the Board collaborative vs. decisive, learning oriented vs. disciplined/risk averse, etc?
Words of Wisdom
Karin Eastham: Educate yourself on best practices and bring those to the Boardroom with you.
Phil Johnston: Board effectiveness is a balance of art, care, insight and science.
Edwin Guiles: If there is an issue with a Board member, take on the responsibility to facilitate a discussion. Have the courage to take action if warranted. Always be honest in communications.
Carrie Stone: Determine relevance. Do all Board members have relevant skills to meet the long-term needs of a company? From a personal perspective, evaluate whether your skills are meeting the needs of the company.