The past year and a half have brought economic and business conditions most directors had only read about in history books. With an economic recovery now showing some green shoots, will your board simply try to forget the past and move ahead — or will you make a careful inventory of the governance lessons your board has learned?

Assuming that your company, or the company on whose board you serve, has survived the economic turmoil—congratulations! If economic forecasters are to be believed, “green shoots” are peeking through, things are heating up, and we are headed for better times.

If your inclination is to breathe a sigh of relief and get back to business, allow us to suggest, “not so fast.” Taking some time to reflect now on how well your board has functioned over the last 18 months, perhaps in crisis mode, and making any needed changes, will help to better position your board for success as you switch to opportunity mode.

We have all read the same stories on the front page of major newspapers. A leading board comprising high-profile directors, accomplished executives, was caught by surprise. Something they should have been monitoring escaped their attention. “Where was the board?” blare the headlines.

This has become an all-too-common scenario, and the trend is likely to continue. With greatly increasing scrutiny of boards, directors worry more than ever about the risk to their reputation of serving on a board, and rightfully so. There is far less margin for error when you feel like you are operating in a fish bowl.

Board behavior is best understood in terms of human behavior, because what are boards at their most elemental level but a collection of people? Just as the ability to reflect and change is crucial to individual growth, so too it is with boards. When we as individuals go through a hard time, if we are smart, we take the time to examine how we dealt with the challenge, what we might have done better, and lessons learned for the next time.

The same analysis applies to boards. One key difference (and a heartening one) is that boards have much more latitude to change. They also have a broader responsibility to do so. After all, if individuals do not learn from experience, and keep repeating the same mistakes, only a small group of people have to tolerate them—close family and others in their personal circle. Boards, however, answer to shareholders and other constituencies, such as employees and community members, who rely on their best judgment. When directors can improve their performance and the value they contribute, they should. The good news is that boards can learn and evolve and, in our experience, directors are often eager to embrace change.

Faced with the unusual, even unprecedented, events over the past year and a half, many boards are analyzing their board structure and process.

The ability to evolve and embrace this change is at the core of board effectiveness, with the most enlightened boards viewing this as an ongoing process. Boards that are good at doing so are dynamic boards, which recognize the need to be flexible, learn from their experience and that of others, and be ready and willing to change when circumstances demand it. It is this approach to remaining “young” that keeps boards, like people, agile and productive.

Figure 1: Impediments to Better Board Performance

Faced with the unusual, even unprecedented, events over the past year and a half, many boards are analyzing their performance and implementing needed safeguards, in terms of board structure and process. This will help them perform better in a wide range of possible scenarios. How well, or not, a board weathers a storm can provide strong clues about where work needs to be done to make the team even more effective.

Board reviews are quickly becoming part of the board’s ongoing work to maintain as effective a team as possible.

Board reflection and review need not be reserved for cleaning up after a storm. As board best practices continue to evolve, reviews are quickly becoming part of the board’s ongoing work to maintain as effective a team as possible. That said, there are certain scenarios that make it even more important to step back, assess the board’s composition and processes, and make needed changes. These include:

• Succession planning.
• Changes in board membership precipitated by retirements or the addition of new directors.
• A significant shift in corporate strategy.
• Lack of clarity surrounding the roles and boundaries of the CEO and chairman.
• Changes in external regulations affecting the company.
• Competing objectives, such as in nonprofit and family-owned companies.

We are regularly asked by clients to undertake board reviews and, while each board is unique, similar themes emerge with some regularity. Following are some common issues raised by directors in the course of a board review, as well the larger problems they may reflect, and best practice solutions.

Symptom: Overwhelmed with data, underwhelmed with discussion.

Many boards go to great lengths to recruit highly capable directors, but then do not provide ample opportunity for them to contribute. Boards may not do this intentionally, of course. Yet if boards lack effective work processes which enable the right balance of sharing information and opportunities to discuss and debate they are not getting the most out of their directors. Issues identified by directors may include an agenda that emphasizes presentations over discussion. The board then cannot delve into critical external topics, such as customers and competitors.

The first “fix” for this problem is a simplified agenda, with fewer rather than more first-tier topics. This helps promote productive discussion. Other topics then fall into a second-tier group, which the board may or may not elect to address at that meeting.

Much can be done to improve agenda management and opportunities for the board to contribute, in a substantive way, during board meetings. The board should be involved in agenda setting, and valuable discussion time should focus on trends and planning versus housekeeping and minutiae.

Directors often express frustration with the mountains of unfiltered information they are expected to plow through. Any necessary meeting pre-reads should include summaries of what action is required from the board.

Symptom: Too little information, too late.

“It seems that some board members are better informed in areas of major importance to the company than are other directors."

Increasingly, committees are taking on more of the work that previously was undertaken by the entire board. However, there needs to be general agreement about the issues that require the involvement of the whole board and at what stage. Similarly, the CEO needs to know when to share high-level management and strategy plans with the board.

When information flow is an issue, boards should reassess the role and composition of the various committees, and empower them to handle work without the involvement of the entire board. The board should also work with the CEO to set expectations about what information it needs from the CEO and when.

The board needs to continually review, identify and prepare possible successors. This should be part of its ongoing agenda (and perhaps part of every board meeting).

Symptom: Succession on the back burner.

Management succession is one of the board’s most critical duties. Yet many boards believe that they spend too little time on succession and talent management issues, including getting to know potential successors beyond formal presentations.

Regardless of the age and tenure of the CEO and the management team, the board needs to maintain momentum on a process of continually reviewing, identifying, and preparing successors for all key positions. Succession decisions may need to be made quickly if there is an unplanned departure, and nothing can derail a company faster than inadequate replacement leadership.

As part of the board’s ongoing agenda (perhaps as often as every board meeting), it needs to devote time to discussing and understanding key people and succession issues. The CEO and senior HR executive must ensure that the board has adequate exposure to key players and provide opportunities for internal talent to build and demonstrate potential. Although the primary responsibility of the board when it comes to succession planning is CEO identification and succession, best practice includes a well-defined discussion of the succession processes at all levels in the organization.

Figure 2: The Path To Better Board Decisions

Symptom: All board bases are not covered.

Gaps may exist on the board (such as in new markets, global mindset and fluency, industries, diversity) which can hamper informed discussion and recommendations in areas like strategy, where the board’s input is key. The board may recognize certain gaps in its expertise that are particularly useful in ensuring support for the strategy. Other, perhaps less obvious, skills and backgrounds may not be identified, however.

Boards are wise to undertake a thorough assessment of the skills and experience represented on the board, whether as a periodic check or if there is an anticipated change in strategy. This gap analysis will enable the board to home in on precisely whom they will need to add to their ranks.

The board should launch a rigorous assessment of existing board competencies and current capability needs, then create a plan to close identified gaps. Particular care should be taken to do this assessment alongside the requirements of the strategy, so that the board’s skill base is forward-looking and prepares it to contribute in a meaningful way.

Ensure that strategy is continually on the board’s radar screen, and schedule sufficient time for strategic discussion. An annual offsite board strategy session is now best practice.

Symptom: Mixed messages about the strategy.

Nothing is more fundamental to the role of the board than helping to formulate and approve the strategy. Yet few boards give this issue the front and center role it deserves, regularly, when the board meets. To ensure the success of the strategy, there should be close alignment between the strategy and key objectives throughout the organization, including links to management objectives and talent acquisition.

The board should ensure the strategy is continually on its radar screen and schedule sufficient time for strategic discussions, including what is now a well-established best practice—a formal strategy session offsite one or more times a year. The board should strive for more uniform articulation of the strategy, ideally agreeing upon key issues. Everything else should be in sync with the strategy, including alignment of management objectives, organizational structure, and talent distribution. In addition, the board should work with the CEO to create metrics to measure progress on strategic objectives.

Symptom: Board inability to learn from experience.

It is difficult for boards to learn from experience if there is no system to capture important board decisions and the consequences that flowed from them, both good and bad. Boards should strive for continual improvement, on both an individual and team basis.

It is important to conduct regular board reviews, identifying specific areas for improvement and incorporating director feedback into the process. Reviewing key board decisions as case studies allows the board to thoroughly evaluate what works well (and where there is room for improvement) contributing to overall board effectiveness.

Given the difficult times many companies and their boards have faced lately, this is a particularly opportune time to undertake a board review and reflect on its ability to tackle challenges and pull together as a team. That way, regardless of what lies ahead, the board will have learned from experience and be able to apply those insights and new skills to the next set of challenges.

It is not enough to have capable directors. Boards must ensure their top performance as a team.

Given the important fiduciary responsibilities of boards, as well as the positive impact a well-functioning board can have on the success of a company, there is greater emphasis than ever on maximizing board performance. Moreover, leading boards are more inclined to focus on the big picture. They view the board as a team, not just a collection of individual directors that needs to possess the right combination of skills and experience to promote proper support and success of the strategy.

When recruiting directors, boards have learned to plan well ahead when there is a vacancy on the horizon. They put a great deal of time and resources into finding the right replacement, often working with search firms to ensure that the specific requirements are met. Now, there is a growing realization that it is not enough to have capable directors. Boards must also ensure the top performance of the team, and focus on the processes that determine how (and how well) the board executes its important responsibilities and accomplishes its work.

Think of the individual directors as the bricks, and the myriad processes and the common understanding of roles and responsibilities as the mortar that hold them together to form the board on which they serve. Both must be strong to ensure the integrity of the whole.

Even when directors recognize the necessity of a board review, it is not easy or necessarily advisable for the board itself to lead the charge. For one thing, this sort of reflective exercise never makes it to the top of the “to do” list when there always seems to be more pressing work that needs to be done.

For another, board reviews are better facilitated by an objective, experienced third party with no stake in the outcome of the process, who can help to highlight issues (particularly sensitive ones) and barriers to enhanced performance. A track record of undertaking board reviews is key to success, because this experience enables the advisor to identify common themes and similar issues that other boards face, and recommend best practices that have proven effective in similar circumstances.

For those boards that have never engaged in a board review, the biggest surprises may be the pentup desire of the members to evolve and adapt as a group, and how much individual directors welcome the opportunity to identify areas for growth and improvement.

Undeniably, there is the pull of the work that has to be accomplished here, as well as the natural forces of both habit and inertia to overcome. Once engaged in a review and with clear direction, however, directors are almost invariably enthusiastic about participating in a process that will help to improve their performance, and contribute to the success of the company.

This article is reprinted with kind permission of the The Corporate Board journal.