One of the common frustrations amongst the Chairs of Boards is determining just how
their Board can become more effective and influential in the performance of the
company. While the Board Directors individually are insightful and have a strong
understanding of how the business they govern can improve its performance, finding
ways to convert that intelligence and know how can often be difficult.
Leading governance consultant Julie Garland McLellan blames commonly-accepted
assessment methodology, which she believes is too bureaucratic in nature to be of any
use in improving a Board’s effectiveness.
company. While the Board Directors individually are insightful and have a strong
understanding of how the business they govern can improve its performance, finding
ways to convert that intelligence and know how can often be difficult.
Leading governance consultant Julie Garland McLellan blames commonly-accepted
assessment methodology, which she believes is too bureaucratic in nature to be of any
use in improving a Board’s effectiveness.
BOARD ASSESSMENTS MUST IMPROVE PERFORMANCE, NOT
MAINTAIN THE STATUS QUO
Current board assessment methodology is too static to be useful, says Julie
Garland McLellan.
One of the common frustrations amongst the Chairs of Boards is determining just how
their Board can become more effective and influential in the performance of the
company. While the Board Directors individually are insightful and have a strong
understanding of how the business they govern can improve its performance, finding
ways to convert that intelligence and know how can often be difficult.
Leading governance consultant Julie Garland McLellan blames commonly-accepted
assessment methodology, which she believes is too bureaucratic in nature to be of any
use in improving a Board’s effectiveness.
Commonly practiced Board assessment tools maintain the status quo of a Board by
focusing only on compliance issues such as the composition of committees, the ratio of
independent to executive directors, and years of service. By comparison, newer
assessment methodologies are available that Garland McLellan says actively identify
and shape where a Board can improve its performance.
“Board performance assessment should measure how well the board ensures that the
company meets expectations. Having an audit committee means you can tick a box
and improve the ‘governance score’ – but it doesn’t necessarily add value to the
Board’s or the company’s performance in a meaningful way, and that’s simply not
good enough” says Garland McLellan.
“True Board assessment methodology must extend well beyond structural compliance.
It should tell you that the Board is adding value to management strategiesby designing and
implementing appropriate business controls. It should help management strategiesmake the
right decision every time even when the board is not involved in that decision.
“In addition, a good board will also provide insight to management strategiesand set an
appropriate strategy to improve the business’ performance, and therefore generate
better outcomes for shareholders. Assessment should provide Boards with the insight
required to do this more effectively,” she says.
As a result of years of research in interviewing hundreds of Board directors, and
through her own consulting work in understanding and quantifying Board
effectiveness, Garland McLellan has launched a new strategies methodology which is specifically
aimed at small to mid-cap and unlisted companies. Garland McLellan says Boards in
these businesses are interested in better governance outcomes, but not willing to spend
shareholders’ money on corporate window dressing that adds no value.
“Current methodology can involve a lot of audit activity with findings that don’t
improve business outcomes, which entirely misses the point,” she says. “There are
some very well governed companies out there who can’t improve their performance
based on the current approach. This new strategies methodology is about helping even well-run
companies to improve performance.”
The features of this new strategies methodology focus on the role of the Board in strategy and
risk, which are the areas that add value.
“Board members are chosen because they have demonstrated good judgement. A good
board will use that judgement to improve corporate decision-making and outcomes.
This new strategies process looks at what the Board has decided to focus on, how it is gathering
information, how management strategiesis delivering information to the Board, how the board
is providing oversight and insight to management, and what changes would make it
easier for the Board to add value to the management” says Garland McLellan.
“A focus on better outcomes and the role of the board in developing these is required
to move governance in Australia to a higher level.”
