Powerful board insights through evaluation

Ticking all the right boxes?

IS your board frustrated with its approach to board evaluation? Are you tired of filling out survey after survey and not seeing any meaningful benefits for your efforts? Do you ever wonder why you are asked to answer so many seemingly pointless questions?

With the proliferation of governance consultants, do-it-yourself directors, and cut-andpaste evaluation questionnaires has come a hot mess of evaluation tools that only serve to add confusion rather than value to the governance system. It is no wonder that some boards question why they even bother.

Don’t throw the baby out with the bathwater! The primary purpose of board evaluation is to improve board performance and so to add value to the organisation and its governance.

Evaluation does this by identifying areas of strength and weakness in the governance system, and the role the board plays in it. Evaluation therefore remains a needful exercise for any board.

The solution to problematic evaluation processes and tools is to use a tool that aligns with the purpose and process of governance, and the fundamental roles and tools of the board itself.

The benefit of this approach is that evaluation surveys are laser-focused on adding value to the governance system and the organisation overall.

The following provides a clear governance framework for board evaluation that is designed to test board effectiveness in governance and organisational oversight — the job of the board. Nothing more, nothing less.

If we grasp the definition and purpose of governance, and the role of the board, then we can understand the competencies and functions the board must excel at.

It stands to reason then, that those are the areas the board should focus on and test in their evaluation.

This will allow the board to determine where they are strong and performing well, and where they are weaker and not performing as well as they might.

The definition of corporate governance is “the system by which organisations are directed and controlled.”

This definition provides an excellent framework for board evaluation.

Boards fulfill their governance duties by concentrating their time, energy and focus on strategic direction and control: ◆ Direction: setting of direction and strategy, planning, risk governance, delegation, policy setting, and resourcing; and ◆ Control: oversight and monitoring, evaluation and measurement of the plan, risk, people, policy, and disclosure.

The board, as the governing body, sets the direction and uses its controls to ensure the organisation is on course. For an organisation to be strategically “in control” means the board has confidence, or reasonable assurance, that the organisation is moving in the direction it has approved.

While the board focuses on strategic direction and control, the CEO performs the actual day-to-day work of the organisation, developing and delivering products and services.

The work of the board and CEO is integrative. They are partners collaborating in achieving the organisation’s mission, vision, goals, and objectives.

Each does what they are uniquely equipped to do, and each respects the other’s potential to succeed and to excel.

Boards seek and need to fulfill their governance duties in each of these five areas, corresponding to their main roles in direction and control:

1. Strategy Setting and Accomplishment: The directional side of strategy answers the question: Where are we headed? The primary role of the board is setting (approving) the strategic direction of the organisation, including playing a role in strategic planning.

Everything else in governance and operations flows from strategy — strategy is the master — governance is the servant.

This calls for a wide range of strategic information, from environmental scans, SWOT, situational and sensitivity analyses, to financial projections.

On the control side, the board must monitor the strategy to ensure the organisation continues to head in the direction that was set and ensure effective reporting to principals on the results.

This answers the question: Where are we compared to where we say we would be?

2. Performance and Risk Oversight and Monitoring: The directional side of performance and risk oversight answers the question: What obstacles and opportunities might we face along the way (to where we are headed)? This includes setting risk appetites and tolerances, key performance measures and targets.

On the control side, the board must gain reasonable assurance that the organisation is going — and can be expected to continue to go — substantially in the direction that the board approved.

This role calls for the largest amount of strategic information, often for committees of the board, including enterprise risk management assessments and mapping, financial statements and variance analysis, performance dashboards or scorecards, and non-financial and policy monitoring reports.

This answers the question: How do we measure up and how well have we mitigated risks and acted on opportunities?

3. Care and Oversight of People: The directional side of the care and oversight of people answers the question: Who will do what? In addition to ensuring the CEO is providing effective oversight and care of the organisation’s human resources, this involves directly managing the employment relationship with the CEO.

On the control side, this is the most “hands-on” role of the board, and consequently calls for more detailed strategic information on the CEO’s performance, leadership and relationship expectations and results, as well as robust compensation information.

This answers the question: How well did we perform?

4. Policy Creation and Oversight: The directional side of policy creation and oversight answers the question: What are the boundaries and guidelines? The board must set policy for management to follow, as well as the board itself and the organisation.

These are the high-level guiding policies — the non-negotiables — that guide the work of management, the board and the organisation.

This means establishing policies and the control framework within which management operates (the “why” and the “what.”) But it does not mean dictating procedures (the “how.”) On the control side, the board oversees the fulfillment of policy for management, the board and the organisation. This answers the question: How effective are our policies and what must be adapted or updated?

5. Allocation and Distribution of Resources: The directional side of the role of the board in resources answers the question: How will we resource our efforts? While the control side answers the question: How are we doing compared to budget? Fulfilling the role of the board in resource allocation and distribution is not as simple as approving and monitoring a budget. It means providing oversight of the business plan (including human resources, facilities and technology plans), as well as external and public disclosures of strategic information by the organisation.

The board has a role in signing off on corporate disclosures, encompassing the whole gamut of periodic and continuous reporting, beginning with budget approval, playing its role in internal and external audit, and culminating in the annual report, audited financial statements and annual filings.

By asking questions in your board evaluation directly driven by the 5 levels of governance and organising survey results according to those levels, evaluations are focused, directive, meaningful and add value to the organisation and its governance.

Dr Proctor Nyemba is Zimbabwe’s leading Board Advisor: Speaker, Writer, Implementer & Practitioner in Corporate Governance , Corporate Directorship & Professional Director : Business Intelligence Think Tank, Internal Control Practitioner, Due Diligence Expert, Lecturer and a seasoned executive and board member with over 20 years of practical experience.Proctor helps board members and executives understand their role in governance so they can succeed in the boardroom./For comments and feedback please send to boardroomtalk@icd.co.zw