Today, too many executives view their boards of directors as a cost of doing business instead of the strategic asset these groups of experienced leaders can and should be for their organizations.
In fact, Filene Research Institute’s 2011 “Power and Governance: Who Really Owns Credit Unions?” research report noted that “Half of credit union CEOs feel that they deal with moderately to largely incompetent and inept boards, according to off-the-record CEO interviews and discussions at national and regional conferences.”
How did we get to a place where up to half of our leaders hold a negative view of their organization’s governing board? First, let’s acknowledge that serving on a board is not an easy task. Consider this definition of a board from a veteran executive search firm executive: “A board is a group of individuals who don’t know each other very well who come together infrequently to make big decisions about an organization they don’t work for.”
Second, I believe that many boards have failed to evolve and adapt their board’s governing practices to keep pace with the increased speed and complexity of today’s business environment.
The good news is that many proactive organizations have recognized the need to improve their board governance processes. While there is no silver bullet for solving each unique board’s governance challenges, I have found there are five core characteristics that any board must exhibit in order to maximize their strategic impact: objective, aligned, equipped, informed and engaged.
Last year, in response to the question I often hear from CEOs and board directors – how healthy are my organization’s board and risk governance practices? – IGS partnered with accounting firm Baker Tilly Virchow Krause, which is known for its presence in the community banking market, to conduct a community-bank-focused board and risk governance practices benchmark study to shed light on board practices for small to mid-size financial institutions.
The results were quite revealing. When all the data were aggregated and aligned with the five characteristics above, participating banks rated themselves highest on the “Informed” characteristic, yet lowest on “Equipped.” In other words, today’s bank leadership did not cite a lack of information available to the board. In fact, many directors noted the overwhelming volume of data they are expected review. However, they did not feel they were adequately equipped to process all the information presented to them to appropriately inform their strategic oversight.
In light of the insights gleaned from the bank board governance study, I would offer three high-level, yet actionable recommendations for leaders seeking to strengthen their boards.
Engage your board in a candid conversation about how to navigate in the new normal. Develop or update your board/committee competency matrix and institute a periodic board and committee evaluation process.
Ensure the vitality of the board. This may require making room for new blood. It’s critical to introduce new skill sets and new perspectives especially in a changing environment.
Invest in your directors. Expanded risk oversight responsibilities make it more important than ever that board training and development is defined and responsive. Boards must assimilate new directors and provide for the ongoing development needs of individual directors.