BY Richard Summerfield
Board effectiveness has been a hot topic in recent years, following the catalyst of the financial crisis. However, for companies operating in today’s business environment, there is no catch-all solution to improving board performance, according to a new report from the Investment Association and EY.
The report, entitled 'Board Effectiveness: Continuing the Journey', attempts to bring the notion of improving board efficacy into sharper focus. It suggests there is no ‘silver bullet’ to board effectiveness, and that companies must do all they can to improve their own boards on an individual basis. One of the key findings concerns the benefits of having regular discussions about the tenure of the company’s chief executive. This, according to the report, should be carried out not only when the firm is experiencing difficulties but also when the company’s outlook is more positive.
According to Andrew Hobbs, a partner at EY in the corporate governance and public policy space, noted that “Uncertainty is a new normal for businesses as they operate in an increasingly global and competitive environment. They are also facing closer shareholder, political and regulatory scrutiny. Given this context it has never been more important to discuss board effectiveness.“ However, making a board more effective is a journey without a destination. Issues such as board succession, CEO tenure and diversity require constant focus and attention, rather than being set tasks with an end date.
Respondents to the report’s questionnaire imparted their belief that companies and their CEOs should establish expectations on a CEO’s length of tenure at the time of appointment. Furthermore, companies should endeavour to develop a strong pipeline of potential boardroom talent further down the organisation. Board readiness is a key feature to future board effectiveness.
Helena Morrissey, chair of the Investment Association, commented that “investors have a pivotal role in working with companies to improve board effectiveness. Effective boards are essential to the long-term success and sustainability of companies and ultimately of the economy as a whole. This report provides practical discussion points to companies and investors to help them enhance their capacity to ensure that boards are effective and always open to improvement.”