High-performing boards: What’s on their agenda?
Directors report that they have a greater impact as they move beyond the basics.
Five or so years after the financial crisis, the pressure on boards and directors to raise their game remains acute. A recent survey of more than 770 directors from public and private companies across industries around the world and from nonprofit organizations suggests that some are responding more energetically than others. The survey revealed dramatic differences in how directors allocated their time among boardroom activities and, most tellingly, in the respondents’ view of the effectiveness of their boards. More than one in four of the directors assessed their impact as moderate or lower, while others reported having a high impact across board functions. So what marks the agenda of a high-performing board?
A hierarchy of practices
Our research suggests that the distinction between higher and lower impact turns on the breadth of the issues directors tackle and on the time dedicated to them. We drilled down to detailed board practices across the functions to which directors devote much of their attention: strategy, compliance, and M&A, as well as performance, risk, and talent management. It appears that boards progress through a hierarchy of practices that’s analogous to Maslow’s hierarchy of needs. Directors who report having a low to moderate impact said that their boards undertake “the basics” of ensuring compliance, reviewing financial reports, and assessing portfolio diversification, depending on the function. Directors reporting that their boards have a higher impact undertake these activities, as well, but add a series of other practices in every function.
In the area of strategy, for example, this means becoming more forward looking. Boards with a moderate impact incorporate trends and respond to changing conditions. More involved boards analyze what drives value, debate alternative strategies, and evaluate the allocation of resources. At the highest level, boards look inward and aspire to more “meta” practices—deliberating about their own processes, for example—to remove biases from decisions.
Further reading: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/high-performing-boards-whats-on-their-agenda