Who’s doing your review?

There's no board governance review like an external review done by a qualified assessor—provided they take the right steps
By Richard Leblanc

A few memories stand out from my engagements as an external board reviewer. One was the dominant CEO who kept interrupting me to tell me how effective he and “his” board were, despite the results of my assessment (the board was in trouble with regulators and the CEO later resigned). Another was a very rich and famous director asking me to leave his office when we debriefed on the peer review, which indicated what his colleagues thought of his contribution (he, too, resigned). A third was a director who actually resigned when he found out I was going to do the review.

So I have learned a thing or two.

First, why would any board do an “external” board review to begin with? Simple. Self interest. Boards assessing themselves are analogous to students marking their own exams. Second, and most important, I’ve learned that external board reviews are often poorly done. Why? What makes for a good external board review? Four key elements.

>Who is the client? The CEO doesn’t hire an external board assessor. Neither should the general counsel, nor the corporate secretary, nor any manager for that matter. The board’s interests could—and sometimes should and will—be adverse to those of management, whom the board controls. The client is also not the chair of the board. A good board review will assess the chair’s performance and he or she is likely the problem if the board is poor.

In fact, the client is the chair of the governance committee (or its equivalent) and the committee as a whole, which ultimately reports to shareholders. If the consultant doesn’t work with and for the governance committee, the review will likely suffer or fail.

>Garbage in, garbage out. Next, the review itself. The vast majority of approaches are superficial, do not reflect best practice, use the wrong scale and are heavily biased. Unfortunately, these “surveys” get perpetuated and become the lowest common denominator. They are highly imprecise and lead to misleading results. There is a false sense of reality when the board “agrees” or “strongly agrees” to a majority of ill-defined performance metrics. The analogy to “happy-face” questionnaires is “pat-on-the-back” interviews. The tough questions are not asked. Garbage in, garbage out.

The board of a bank is not the same as the board of a hospital or high-tech start-up. Reviews need to be best practice, highly customized and rigorous. They need to span silos.

>Importance of 360° feedback. If a board is stale, management knows. If a director is not performing, directors know. Each director and reporting management should opine on other directors. The learning and self-development here is tremendous and counteracts a board or director thinking he or she is better than others. A good peer review will include self, peer and board assessment, so each director knows how he or she performs relative to his or her own perception, other directors and the board as a whole. The peer review becomes a developmental and recruitment tool.

>Reporting and debriefing. Perhaps the weakest link for a board review is internal reporting, implementation and action taken based on the review. Feedback should be provided to each individual director and debriefings should occur to discuss development, priorities, committee and board reform, and tough discussions—such as leadership and behavioural change and director retirement. A good review addresses every director’s knowledge of the business, judgment, communication, integrity, willingness to act, thinking skills, financial acumen, interpersonal/teamwork and commitment. These are very specific skills that each director needs to possess for the board to be effective. One director can unduly affect an entire board dynamic and decision. Governance committee chairs and I have had tough but candid discussions and coaching with directors based on these outputs. It is not easy, but without proper data and leadership, directors on the receiving end either refuse to acknowledge or do anything about it.

Richard Leblanc is an associate professor, governance, law & ethics, at York University’s Faculty of Liberal Arts and Professional Studies and a member of the Ontario Bar. E-mail: rleblanc@yorku.ca.

 

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