98% of boards rate themselves as performing above average, yet executive management holds a different perspective, viewing their boards as less high-performing. This insightful statistic is derived from our extensive databank, comprising thousands of online responses from non-executives and executives engaging in board evaluations. The data is gathered through our external board evaluation or originates from our onlineboardevaluations.com services, designed to support boards in their annual self-assessment.
So, what makes a board stand out positively? Here are five valuable insights on cultivating a board that adds significant value.
1. Create psychological safety
Board members share a common goal with the executives - to ensure the company's success. However, despite these shared aspirations, many board members struggle with effectively deploying their knowledge and experiences. The root of this issue lies on both sides of the table. One primary reason is that materials provided to the board, typically crafted by senior executives, often fall short of clearly framing the questions for the board. Consequently, board members find themselves uncertain about how they can best contribute.
This lack of clarity leads to a common pitfall - when board members are not invited to participate in open-ended discussions regarding potential solutions or alternatives; they tend to scrutinize the executives' arguments for weaknesses. Instead of fostering a safe space for addressing complex strategic issues, an unhealthy cycle takes hold. Executives present their ideas, non-executives search for "flaws," and the executives become defensive. This cycle continues as board members respond with more critical questions, ultimately leaving everyone feeling that the meeting failed to generate significant value.
A better strategy for non-executives is to consistently ask the senior executives about how they would like board members to help. It is crucial to encourage executives to bring forth their dilemmas and challenges in a way that clearly outlines the context and the key questions that board members can help solve. Furthermore, understanding whether board members are expected to actively participate in "discussing and deciding" or serve as a "sounding board" (i.e., offering insights without making decisions) is essential. By adopting this approach, non-executives can contribute more meaningfully to the decision-making process and foster a collaborative environment.
2. Ensure a relevant board agenda
Drawing on our annual analysis of hundreds of board agendas, a clear observation emerges: there is significant room for improvement in how most boards allocate their time. A substantial portion of board meeting time is often dedicated to reporting and updates, with many boards spending a disproportionate 50-65% on these activities. Through collaborative efforts with our long-term clients, we have successfully reduced reporting time to a more focused 30-35%. The key to this efficiency lies in changing the order and the content of the agenda points.
Do not start with “housekeeping” points (like minutes of previous meetings) or go through the latest financial update. Since relevant information is distributed in advance, board members can be prompted to confirm their acknowledgment and understanding using the digital board platform's "voting button." Any clarifying questions can be inserted into the shared board platform by the evening before the meeting, allowing executives to address pre-collected inquiries during the meeting. This way, it is easier to prevent board members from going down the alley of spending time on what could be nice but not crucial.
A more impactful and focused discussion can unfold by starting the agenda with the most crucial and strategic questions formulated as such. For instance, questions like "How can we drive significant growth in markets x, z, and y?" and "What key consumer trends should we tap into and how?" set the stage for substantive deliberations. Similarly, probing the current quality of the leadership team, assessing future needs, and strategizing on closing the gap can spark insightful discussions.
Unless there are compelling reasons for addressing "housekeeping" questions at the beginning, it is advisable to place them at the end of the meeting agenda to enhance efficiency further. This strategic reshuffling ensures that valuable meeting time is dedicated to addressing critical and strategic matters first, fostering a more purposeful and productive board environment.
3. Lay out a professional decision-making structure
Every year, we have the privilege of observing many different board meetings. What astonishes us repeatedly is the fragile process of making significant company decisions. Research* underscores that professionals often dedicate disproportionate time to data analysis, neglecting the critical aspect of establishing a robust decision-making process, which could significantly enhance the quality of decisions. Unfortunately, the field of decision-making science is still in its infancy, and, like most individuals, board members lack formal training in the art of "making good decisions."
While delving into the intricacies of decision-making science is beyond the scope of this article, there are a few valuable tips to consider for improving decision-making:
Widen Your Options:
When presented with only one or two alternatives, chances are the frame is too narrow. The world rarely operates in absolutes, and between "yes" and "no," there are often multiple alternatives.
Reality-Test Your Assumptions:
Challenge assumptions by taking an outside view, identifying base rates, and seeking input from others who have faced similar situations. Lack of opposition may indicate insufficient scrutiny, so actively seek alternative perspectives.
Attain Distance Before Deciding:
Overcome short-term emotions by allowing time for reflection. Sleep on decisions and align them with core values and priorities to ensure a more balanced and thoughtful approach.
Set a Tripwire:
Given the gradual and sometimes invisible nature of day-to-day progress, it can be challenging to determine when to pivot or abandon a project. Setting a deadline or using a partition as a tripwire allows for periodic assessments, helping make informed decisions based on evolving circumstances.
The overarching principle is that a well-defined decision-making process by the board and executives is a crucial safeguard for the company. By emphasizing these practical insights, boards can contribute to a more thoughtful and effective decision-making culture, ultimately benefiting the organization as a whole.
4. Be attentive to biases
A significant factor that can undermine even the most meticulously crafted decisions is the presence of biases. All individuals, including board members, are susceptible to falling into psychological traps known as biases. Contrary to the common belief that intelligence protects against blind spots, research indicates that "smart" individuals, including board members, usually have more blind spots as they tend to be more overconfident.
Drawing on our extensive board observations, here is an overview of the biases we find most relevant for board members to be mindful of:
Believing that forecasts or evaluations are more accurate and precise than they are.
Planning Fallacy Bias:
Underestimating the time and cost of projects.
Availability Heuristic Bias:
Relying on information that readily comes to mind, often based on recent experiences.
Representativeness Heuristic Bias:
Assuming that things, events, or people similar in one aspect are similar in other aspects.
Exaggerating the typicality of one's tastes and preferences.
Continuing with a failing project due to prior investment rather than objective evaluation.
Allowing decisions to be swayed by how options are presented.
Mere Exposure Bias:
Developing a preference for familiar things, leading to a bias toward the status quo.
Loss Aversion Bias:
Perceiving losses as more painful than gains is pleasant, influencing decisions disproportionately.
Research also indicates that biases are magnified within groups, including boards and senior executive teams, for two primary reasons:
Members tend to follow the majority's errors, either out of trust in the group or uncertainty about the correct answer.
Group members may silence themselves or alter their views to avoid appearing foolish or disagreeable or face penalties.
While diversity in group composition has been proven to enhance intelligence and mitigate groupthink, it's crucial to recognize that biases and groupthink cannot be entirely eliminated. However, by familiarizing ourselves with these biases and consistently revisiting the potential pitfalls in decision-making processes, we can minimize their impact on our decisions.
5. Get your board regularly, robustly externally evaluated
Much like the general sentiment among individuals, board members are not particularly enthusiastic about undergoing evaluations. However, just as we consider it natural to evaluate coworkers and executives to recognize their strengths and support their continuous improvement, we must acknowledge that boards also benefit from evaluations. Interestingly, those already excelling clients are often the most eager to seek further insights and enhance their performance.
A comprehensive and high-quality board evaluation necessitates the expertise of external consultants with substantial experience in board evaluations. Only they can ensure that the right questions are posed, and the findings are framed in a relevant and actionable context. A robust evaluation should encompass both an online survey and in-depth personal interviews conducted with a commitment to maintaining the anonymity of each respondent.
Additionally, various desk research and analysis are pertinent and tailored to the specific company and board situation. This may include scrutinizing board members' curriculum vitae, reviewing how the board allocated its time over the past year, and assessing the extent to which it adheres to national corporate governance recommendations, processes, and charters.
In the evaluation process, individual board members should also be evaluated on how they add value. We offer clients the flexibility to choose from three distinct approaches, ranging from a "very light touch" to a more comprehensive assessment. In the latter, each non-executive receives feedback about understanding how others perceive their contributions across various aspects, presented anonymously.
Conducting a robust external board evaluation every three years does not demand an extensive time commitment from participants. The time invested is undeniably worthwhile when weighed against the valuable insights generated and the potential to fortify the board's role in securing the company's future.
We hope you enjoyed your reading and gained new insights for your board! Share this article with your network and follow the Leadership Advisor Group page for upcoming tips. If you're seeking guidance on board effectiveness or how to become a more impactful non-executive, reach out for a consultancy session.