Thursday 18 January 2018

Boardroom Effectiveness - Personal Performance or Group Performance?

Board of directors as a whole are expected to be effective. Given that boards are collection of people, the question of whether effectiveness comes from individual performance or collective performance could arise. Let us consider some factors which could influence board effectiveness.

Board composition

Like any other team structure, the composition of the board is critical. Who sits around the table, what skills and values do they bring and whether collectively they have what it takes to bring the company forward successfully are pertinent questions.

Unlike a soccer team where a manager would determine the composition of the team based on his philosophy of playing, the composition of boards is determined by the nomination committees consisting of existing board members themselves. To a certain extend, there would be challenges in shaping compositions of the future if some of the committee members would nee to be excluded. Tough job!

Having agreed on the composition is just one part of the story. Convincing the right candidates to join would be the other part. Sometimes, the reputation of the controlling shareholders or the company as a whole may determine whether competent and qualified people are keen to join or otherwise.

Board dynamics

A soccer team full of stars would not necessarily win competitions. It all depends on how well the team members play together in accordance with the strategy of the coach and the strength of the opponents.

Similarly, in boardrooms, how the members interact and work together would also influence their effectiveness as a whole. Are there enough candour where people are free to share their thoughts and views or are there prima-donnas who are keeping the airtime only to themselves?

How the board eventually arrive at their decisions would be influenced by the dynamics. In some cases, decisions are not made until everyone has given their views, no issue with this. In some other cases, few individuals in boardrooms could be the decision makers, especially when the rests are merely seat warmers and would follow the flow of the deliberations. Would this be fair to the companies they serve?

To a certain extend, the ways chairmen of boards allow the meeting to flow would have impacts on board dynamics. Some chairs are firm with a particular way of deliberations while there could be chairmen who let meetings find their own causes.

Staying the cause

Directors are expected to be honest and act in the best interests of the companies they serve. Achieving this could be influence by many factors;  strategy adopted, quality of management; situation of the industry; strength of competition, economic conditions naming the few. 

Hence, boards have to be clear of the way forward, oversee management, ensuring proper check and balance mechanisms are in place, guide management in dealing with market dynamics and competition and more importantly, setting the tone on values and culture would eventually lead them to the fulfilment of their duties and responsibilities.

Both aspects must be there

Looking at the above issues as a whole, both personal performance and group performance are important. Each board members has to bring value to the table. At the same time, their collective performance would also matter as in most cases, boards would be judged based on the decisions made in the cause moving their companies forward and provide returns to shareholders and investors.

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