Good financial results and compliance with corporate governance codes do not tell the full story. Now new research from the Corporate Research Forum/Performance & Reward Centre has identified some key characteristics of the high-performing board.
When I look at a company's performance from a distance – say through the eyes of a fund manager – what can I see? Well I can see the financial results, and I can see the historical trends in these results.
I can do some projections of future results if current trends continue. I can compare these with other companies in the same sector to gauge relative performance. I can also attend company presentations, and listen to market opinion.
If I am sufficiently influential I can also get to meet the chief executive and finance director to check out the assumptions of my modelling, talk to them about the strategy of the business and take a view on their personalities and relationship, and whether I think they are credible.
Additionally, for UK listed companies, the Combined Code now exists as a benchmark of the sort of composition that should ensure proper oversight.
Good standards of corporate governance allow me to trust in the board's ability to monitor executives and to trust the reported financials. What shakes my confidence are shocks and surprises, since these call into question both performance and the quality of data.
These concerns are familiar. The measures referred to can be valuable. But even with the best reporting there remains a great deal that I cannot see. What about the collective skills, teamwork and relationships that bind a board and an organisation together and enable it to perform?
It is not only the fund manager who lacks information. As an employee, I may know little about what the board actually does. If I read in the newspaper about the sizeable pay packages awarded, but I know that not every part of the business is thriving, I may seek reassurance that the leadership of the company has a coherent strategy and the capability to deliver.
Lastly, if I am a prospective or new board member I would like to possess meaningful knowledge about the nature of the role I am stepping up to. What are the core duties and requisite attributes of the board member, of the chairman? How do the executive and non-executive members work together? How do I prepare myself for this promotion? What do I actually need to do on a day-to-day basis?
I have just completed some research, with business author and former board director Don Young, on behalf of the Corporate Research Forum and the Performance & Reward Centre. We interviewed in depth nearly 40 high-performing board members to discover more about how they work in practice; what is effective – and what is not.
What we found was both illuminating and disturbing. Some aspects of board performance are strong; but where it is weak this is almost entirely hidden from the outside world. What's more, some of the pressures from investors and regulators can tie board members up and not enable them to pay enough attention to developing the business.
Our research is an attempt to identify key attributes of a board, with a particular focus on the ways in which a board can help to create high performance. Our 'inside' story has, we feel, yielded rich narrative detail about the style of chairmanship, leadership and teamwork that are effective.
We uncovered considerable difference between some boards and others. As details emerged, they began to divide into two broad camps that are difficult if not impossible to identify from the outside using traditional indicators.
Firstly, there is the company that is led by the latest demands from investors, that often makes dramatic announcements in response to pressure – such as a major sacking or an acquisition. These we call 'investor-driven' companies and have a tendency to be more unstable and lower performing.
The other camp consists of companies where the board develops a longer-term perspective of the company's fortune and where the demands of investors are noted, but do not become the driving force. Their performance is more stable and the returns are stronger. These we call 'strategy-led' boards.
Our findings reveal much detail on the workings of the high-performing, 'strategy-led' board. We hope that they will help corporate board members increase their effectiveness, and help inform investors and other parties of some key characteristics that generate organisational success.
