Good-to-Great Boards and the Importance of Culture

saporitoAs I reflect on our latest research about what distinguishes good boards from great, high-performing boards, I find several themes emerging from the data that echo the pressures felt by directors today.

We recently interviewed 45 directors who collectively serve on 125 boards of public companies with revenues in the midcap to Fortune 50 range. We sought their experiences and views on what makes a board great and what high-performing boards focus on.

Without question, board members are shifting their attention away from statutory and regulatory compliance; for the vast majority, that work has already been done. Our research shows that their attention now centers on addressing the fundamentals in board succession, competency and composition. Yet, among the best, even these considerations are becoming table stakes.

What truly distinguishes great boards is something that is hard to measure and even define, yet it is recognized by many directors as the underlying criterion for success—board culture. In this changing business environment, the effectiveness of board interaction ultimately shapes high-performing boards. The most successful are able to gel together as one and succeed in defining their roles in their companies’ futures.

“Board culture truly distinguishes great boards. It is hard to measure and even define, yet is recognized by many directors as the underlying criterion for success.”

THE BEST LOOK TO STRATEGY AND PROCESS
Superior boards are no longer content with traditional governance, but look to become more strategically aligned in helping to achieve their companies’ goals. This trait has made them more disciplined and skills-focused in their board succession.

In our research, the best understand the strategic implications of board succession and plan beyond the traditional roles of governance, audit, finance and compensation. Once boards define their value-added roles, the best take stock and identify the skill sets and expertise needed. Then, they match those qualities up against existing capabilities and term limits and use the information to shape and define their succession plan. All of this speaks to strategy and process, the first priorities.

What cannot be overlooked is the social glue that a team needs to keep them united as they hash out the strategic direction of the board, the value that each member brings and the talent being targeted for board succession.

THE VERY BEST FOCUS ON BOARD CULTURE
To align with purpose, boards need to build cultures of trust, communication, teamwork and candid debate. Our research shows a strong desire among directors to create an atmosphere that promotes open discussion, role clarity and genuine respect for differing opinions.

A board of directors experiences the same dynamics present in any small group. There are always risks found in trying to maintain social accord, groupthink, the potential to deflect responsibility and the conscious—and often unconscious—motivations to not rock the boat to maintain relationships.

The best boards confront these cultural issues and tendencies head on. The top factors that directors most often cited as contributing to the making of a great board were the qualities of boardroom dialogue and debate (88%) and the ability to ask the tough questions of management (77%). Conversely, the greatest factors directors mentioned as undermining board effectiveness were lack of candor in the boardroom (77%) and lack of mutual respect and a collaborative culture (68%).

Many directors commented on the importance of healthy conflict and tension in the boardroom and of feeling comfortable exploring issues from different perspectives. A key strategic element in their succession planning is to identify individuals who reflect the culture they want to establish and attach the same importance to it as they do to the skill set the individual brings.

The great high-performing boards today have a handle on strategy. They know how, where and when to fill the skills gaps needed to help their companies compete and succeed in the future. More importantly, the very best realize the need to come together as one and build a culture of trust, communication and debate.

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