How to measure the influence of the Board?
The Board of a company, as an institution representing the interests of the owners, has always been a force that balances different interests and ensures long-term development.
The interests of employees, the owners, the management team and the legislator, are often expressed in different vectors, and the Board then becomes an acting mediator capable of finding the best middle way to maintain the company's long-term development.
Therefore, the day-to-day work of the Board is subordinated to each particular situation and may vary widely – the Board may not only work as a strict supervisor of the management team, but can also be a driver of strategic decisions, a driver for change.
The question is, who and how will assess the work and contribution of the Board itself in these very different circumstances and situations? What is the role of the Board in case the company has become an industry leader and continues to grow? On the contrary, can we blame the Board if the results have not been achieved and errors have been made?
The assessment of the quality of work of corporate and institutional Boards has long been known, but it has become particularly up-to-date following the crisis of the energy giant Enron at the beginning of this century. Various methods and approaches to the evaluation of the Boards have developed over the past two decades. Many companies carry out this assessment every year, understanding that the role of the Board has changed in most cases, namely that it is no longer an institution that draws in or does not place a check mark on the list, but a strategic driver for the company, in fact an essential element of competitiveness. And if the Board already requires transparency and openness from the Board, it should apply the same to itself.
There are three methods for assessing the effectiveness of the work of the main Board. The first is self-assessment when the Board Evaluation Tool (Amrop Latvia methodology) questionnaire is answered by the members of the Board. This can be done, for example, by the Chairman of the Board or by an external consultant. This is a relatively simple method that can also be implemented by the company itself, but it often lacks a deeper dialogue with each of the members of the Board, during which the real problems and issues that cannot be included in the questionnaire are usually identified. Therefore, the second method is in-depth interviews with Board members conducted by an adviser from outside (usually at the invitation of the Board chairman).
A third approach: an in-depth assessment of the work of each member of the Board, using a 360-degree method which provides for interviews not only with the members of the Board but also with other staff who can assess the work of the Board. These methods shall be combined and shall be supplemented with other elements, taking into account the specific nature and needs of the work of the organisation concerned. Such a valuable additional element is also the so-called “shading” (shadowing), when a consultant is present at the meetings of the Board, who can assess the work of the members of the Board on a daily basis, the initiative and the contribution taken as a whole.
The assessment helps to understand whether the Board has all the necessary competences for the organisation in question, such as the establishment and communication of key stakeholders, the effectiveness of the Board’s work, the quality of the discussions that each member's contribution has, or there are no weak spots that would need to be replaced. (In general, the assessment method of the Amrop Latvia Board assessment provides for an assessment of 11 different areas of criteria.) It is recommended that such an assessment of the work of the Board be carried out annually, taking into account the 4-5-year cycle. It is crucial to compare the dynamics over the longer term, so the initial in-depth assessment of the Board may continue to be simpler and faster in the coming years.
Our experience shows that the Board assessment can have a deep and lasting effect. I have encountered situations in assessment interviews, where Board members have shown their concern, but later on, during the discussion with a consultant, everything seems more solvable and simpler than beforehand. At the time of the assessment, some have voiced an opinion about the board being demanding, but sometimes it’s on the contrary.
The management team of a major trading company revealed to Amrop Nordic counterparts during the Board’s assessment that he wanted to feel bigger challenges from the Board, namely that the members of the Board were too nice and resilient. In one of the Latvian hospitals where we recently carried out an assessment it revealed that a large number of practical cases can be changed without special investment.
The results of the assessment almost always reveal a problem or an issue that the Board members themselves have not yet noticed or imagined. Typically, it becomes a useful tool in the hands of the Board Chairman to change and improve the work of a Group of Directors.
When assessing the work of the Board, it is important to remember that its main task is to work on the future potential of the organisation, rather than on the achievement of short-term tasks. That is why the Board’s assessment of work cannot be based, let us say, on quarterly or annual results. The focus should be on the strategic development of the organisation and on everything related to it. It includes risk management, searching for new business opportunities, introducing changes according to the current ideas and requirements. Board is one of the company's drivers, future makers. The quality of the Board’s work will always depend on how professionally it has been created, such as the multiplicity of executive experience included in it, on the ability of the team to cooperate, on high-quality communication. If any of these things fail, an assessment audit of the Board’s work will certainly identify it.
Another important thing is that, above the Board, only the owners of the company or their representatives are present, so there are actually no people within the organisation who could carry out a reasoned and competent assessment of the work of the members of the Board. The Board, however, includes the most experienced, intelligent people of a company or institution. The effectiveness of their knowledge in the matter often depends on the organisation of the Board’s work, including how quickly the Board members receive high-quality information on business and sector developments. Another aspect that we take into account when assessing the work of the Board is the ability to communicate and work with the owners of the company and the management team. If these links are not strong enough, the effectiveness of the Board’s work will be reduced.
The role of the Board as future advisers, for many companies is one of the core values of their competitiveness. A proper establishment of a Board and its regular assessment are the story of a long-term investment that needs to be usurped every now and then, so that the most valuable plants are not overshadowed by more glamorous but less valuable ones.
Partner of Amrop Latvia and Managing Partner of Amrop Ukraine