Measuring non-executive board performance. Part 1 – 3 ineffective approaches used in practice
Over the last decades, more and more organizations have broken the boundaries of traditional, financial-based performance measurement, and started using KPIs for monitoring other activities as well. Furthermore, assessing individual and team performance has become a common practice in organizations where leveraging talent can represent a competitive advantage. Evaluating board performance is important, as this entity is responsible for ensuring that the organization’s desired state of evolution is successfully reached.
Although today there is a wide variety of articles dedicated to measuring executive board performance, there are few resources and insights on evaluating the performance of non-executive boards. While executive members are responsible for managing the organization, providing added value for stakeholders and sustainable growth, the non-executive board acts like a counsel, offering guidance on strategic matters and providing a broader perspective upon the organization. They can contribute in terms of:
- Strategic directions, as they might have a different, broader view upon the activities, comparing to the executive directors, who are involved in everyday operations;
- Performance evaluation of executive board, to ensure the desired results are produced and the directors are adequately incentivized;
- Risk management and audit, as they should make sure the organization is respecting legislation and it has a sustainable development rhythm, while also providing accurate financial information;
- Connecting the organization to the external environment, as well fostering partnerships or strategic alliances;
- Enforcing and promoting company brand through their individual image and reputation.
Considering the above-presented areas as key responsibilities of the non-executive board, how can we actually evaluate whether its role is successfully accomplished? Let’s start analyzing this matter by identifying, first of all, some practices that are sometimes deployed and which are not very effective:
- High performing individuals as board members = high performing board
From the systems theory perspective, it makes sense to assume that the more outstanding each system component is, the better the system will function, meaning that the performance of the non-executive board should be the sum of individual contribution + synergy effect. The componence of the board is indeed an important factor, but a high individual performance will not ensure the team’s overall performance.
In reality, it is pretty easy to observe the existence of highly skilled professionals, placed within teams that are struggling to meet targets, as well as great leaders who manage low performing organizations and the other way around. Thus, the business environment seems to defy some basic rules, and forces us admit that the dynamics of the non-executive board team can either leverage the value of high-performing individuals in the favor of the group or it can waste it.
- High performing organization = high performing board
Switching the perspectives to a larger scale, we can easily presume that, if a company is constantly meeting and even exceeding stakeholders’ expectations, it must also be the merit of the non-executive board. Well, that is not entirely true… If we take a look at the non-executive board’s responsibilities, we can see that its pieces of advice and its decisions around strategic directions, or the way they positively enforce the brand can eventually open doors and create connections for the organizations.
In most cases, all these actions lack the immediate effect. This means that a board which makes good decisions today will most likely reflect in the following 3 to 5 years evolution. In this context, a high performing organization today may be the result of the previous non-executive board’s decisions.
- Non-executive board performance is measured = Non-executive board performance will improve
For organizations that have understood the need to monitor non-executive board performance, just as all the other key activities within the entity, it is important not to focus on what is easy to measure for the sake of measuring. Here, there are 2 issues to keep in mind:
Do not evaluate board performance just from a quantitative perspective, as % Attendance rate during board meetings, # Critical issues covered, and focus on what is easy to measure. An effective performance evaluation should also include KPIs that reflect the outcome or quality of decisions, like # Corporate governance index, # Quality rating of strategic planning advice, # Non-executive board members engagement index.
Furthermore, the KPIs which can be monitored more frequently, in some cases even monthly or quarterly, can be accompanied by annual qualitative assessments developed through the use of surveys.
For this type of surveys, six areas can be analyzed. These areas were revealed by research studies focused on identifying characteristics of high performing executive boards. However, they can be adapted to non-executive boards, by repositioning each area, as illustrated by the Human Services Coalition of Tompkins County:
- Strategic – contribution to strategic planning;
- Contextual – clear and effective decision making in accordance to the company’s vision, mission and values;
- Analytical – examines all sides of an issue and engages effectively in problem solving;
- Political – involved in developing and maintaining good relationships with all stakeholders and external parties.
- Educational – well informed about the internal and external environment of the organization;
- Interpersonal – functions like a cohesive group and manages effectively conflicts.
Just measuring won’t do the trick – it is important to acknowledge that change is not triggered by measuring performance, but by taking actions based on the feedback provided by measurement. Acting upon the results of KPIs in order to improve non-executive board performance will contribute to building a performance culture.
Follow the Measuring non-executive board performance article series to discover effective approaches to measuring non-executive board performance. The following article will comprise examples of KPIs and statements which can be used in surveys dedicated to this matter.
References:
- Human Services Coalition of Tompkins County (n.d), Improving board effectiveness
- Institute of Directors (2010), The role of non-executive director
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Tags: board performance measurement, Performance Measurement
