Continuous improvement is better than delayed perfection.Mark Twain, writer
If we could name just one way to evolve your corporate governance, it would be continuous improvement. A strong board that is always looking for ways to finesse its operations can help to instil healthy workplace culture and environment from the top down.
With this in mind, let’s look at the ten steps your board can take to improve its corporate governance.
1. Look Beyond Compliance
Compliance is a major consideration for the board. They should ensure the organisation conforms to the local legislation, rules, codes of practice and the company’s articles of association. This is understood to fall within the board’s remit, but it is not the only aspect of its work that is valuable to the company.
The board’s role in improving performance is also key to the progress of the business. This includes the formation of strategy and policies, which should always be considered when trying to balance the various aspects of the board’s function.
Another consideration is where the board’s responsibilities end and management’s begin. There should be a clear distinction between the two to allow them both to operate to the best of their abilities for the good of the company. Each organisation should set the barriers in the areas that best suit them, clearly defining the function of the board in relation to management that will lead to a more harmonious operation.
2. Define the Board’s Role in Strategy
Following from step one, you should also delve into what the board’s hand in the company’s strategy looks like. In most organisations, the board will take the lead on developing and defining the business strategy.
Once again, there needs to be a definition between the role of the board and that of management. Generally, the board should:
- identify priorities
- find resources
- allocate the necessary funds to facilitate strategic decisions
- establish goals and targets
The board should also oversee the progress of the strategic plan, potentially readjusting goals or redistributing funds accordingly depending on events. This should be performed after a deep dive into the data surrounding competitor performance and the industry ecosystem.
3. Solidify the CEO <> Board Relationship
A strong relationship between the CEO and board is essential for improving corporate governance. It’s the CEO’s responsibility to carry out the board’s directives. But it’s the board’s responsibility to consider the CEO’s requests over policies, meaning that a poor relationship can lead to a breakdown in both functions.
There should be a free flow between the two bodies, with direction heading from the board to the CEO and feedback coming the other way. The CEO also needs to understand the board’s directives in order to enact them, making good, clear communication an essential part of the relationship.
The board appoints the CEO, works with them, reviews their progress and then replaces them when necessary, making it important they choose the right candidate who will be able to meet the business goals with the tools they give them. Although board members are busy, they should attempt to meet candidates for the CEO role in person during the selection process as this allows them to better decide whether they will be able to develop the necessary working relationship in the future.
4. Drill Down on Organisational Performance
The way that you report organisational performance is key to making the right decisions based on the correct data. Performance measurement specialist, Stacey Barr, writes that “boards of directors are notorious for poor use of measurements” and warns that “governance isn’t possible without the proper use of proper measurement.”
Corporate governance is impossible without the ability to establish the measures that dictate the success or otherwise of organisational performance. This is not just in terms of increasing revenue, but of legal compliance, too. The stakes are high.
Board members need to be able to track the organisational performance of the business and one method is to present the relevant information in easy to digest reports and graphics in the board pack. Sending these reports out through iBabs’ board portal allows directors to access the information on their devices, wherever they are, and to collaborate, annotate and discuss the measures to better understand what they are looking at.
5. Keep Board Members Fully Informed
Of course, it is not just organisational performance KPIs that help board members in decision making. Making sure board papers are detailed but easy to read and with relevant highlighted information is a great start, and using a board portal allows easy digital access to relevant data even when you are offline.
However, board members can never be too well informed, so it is worth considering a host of additional resources to ensure they know everything they need to know about the business and its performance.
These can be tailored to the individual director, based on their skillset and areas of expertise. You might consider inviting them for site visits, enrolling them on development programs, providing targeted briefings or any other resources that can bring them closer to the company and help them make the right decisions.
6. Strengthen Risk Oversight and Management
It is the board’s responsibility to be constantly monitoring areas of risk both locally and globally. Of course, there are always risk/reward trade-offs to make and you can only be sure that you are making the right decisions if you truly understand the nature of the risks involved in all manner of areas, including:
- relating to national laws in the countries in which you operate
- stock exchange listing requirements
- business best practices
- fiduciary duty
To ensure the board is monitoring risk to the best of its abilities, you need to task committees with the role of overseeing this area. Besides the Risk Management Committee, the Audit Committee should also take on some of the duties. The two should ensure they communicate clearly with each other and with the board as a whole, too. Another step you can take is to bring in external consultants to analyse and review risks and systems.
7. Create a Working Governance Infrastructure
Your governance infrastructure needs to work downwards, with a clear line of responsibility running from the board to management. It should also work upwards, with the processes in place to feed directors with the key details they need to make informed decisions.
As the board takes the lead on decision making for the organisation, this must be communicated to management in a manner that allows them to carry out their duties with the clear knowledge that they are aligned on strategy. Any misunderstanding or miscommunication can lead to problems for the business.
The three central pillars of a governance infrastructure that works are:
- reporting and communication
- policies and procedures
- the technology that allows these to continue seamlessly.
The procedures and processes within the board are particularly important to allow the members to carry out their work with success. This includes, for example, using a board portal for easy distribution, discussion and approval of meeting minutes, agendas and board papers. Ensuring all members have access to the latest version of each document at all times, have them well in advance of the meeting and can refer to the relevant passages with ease, rather than by trawling through reams of paper, can be achieved by using software like iBabs.
8. Develop a Board Culture That Helps it Thrive
Board culture is recognised to be important but very hard to quantify and change. However, it is increasingly key to helping the board thrive. Research shows that more diverse boards perform better, so proactively seeking to increase representation from people of different ethnicities, genders, and with varying skills and experience is a good way to develop a more healthy board culture.
The chair also plays a major role in nurturing the board culture. Their style has to fit the type of business and even the location of the organisation. In some organisations and regions, having a direct manner when conducting debate works effectively, whereas boards in other areas would benefit from a more collaborative approach to problem-solving.
In any case, boards must have the requisite people skills to take control of board meetings and enable the directors to come to satisfactory decisions, whilst also being able to communicate and collaborate effectively with the CEO.
9. Broaden the Board’s Skillset
As a board, you should continually be looking to add more skills and competencies. The ideal board would feature a balance of members who are immersed in the organisation and have experience of how it works. At the same time, those who come from the outside would bring a new perspective, fresh ideas and abilities.
You should look to see in which areas you are lacking a specialist and aim to recruit someone to fill that gap, bringing something new and valuable to board meetings. You also need to look for directors who are likely to contribute and who will contribute to positive board culture.
When you add members, you have to consider how they will fit in with the dynamics of the board as it stands and how they will enhance the existing relationships in the boardroom. You should also consider the personality types that are missing. This can help you find someone to complement the board and be aware of not onboarding anyone who may cause unnecessary friction.
10. Conduct Regular Board Evaluations
No board is perfect, but those that perform the best are the ones who work on continuous improvement and that is made easier by conducting regular board evaluations. Many financial regulators around the world demand that boards evaluate themselves, but few lay down any guidelines as to how to do it. This leaves some boards sending directors thin multiple-choice questionnaires in what is nothing more than a “check-the-box” exercise.
A thorough board evaluation asks difficult questions and seeks to delve deep into how the board works to uncover areas that require improvement. Whether it is identifying skills gaps, improving ESG performance, exploring the board dynamics or any other aspect of the board’s role, you should ask clear, direct questions of your members to find out exactly what needs to change.
Help From iBabs
iBabs’ board portal helps to streamline your meetings and keep all board members informed at all times. By using our platform, you can ensure everyone is fully briefed before board meetings, that there is an easily identifiable audit trail and that action points are taken care of in good time. Request a demo today to learn more.