What is board effectiveness?
Board effectiveness refers to how well a board of directors fulfils its responsibilities. These responsibilities are set out in company law and supplemented by corporate governance codes and guidelines, which vary by country and sector.
Beyond compliance with relevant laws and regulations, board effectiveness also relates to how well a board performs its supervisory and steering roles.
The board’s supervisory role is focused on monitoring the delivery of short-term performance. When performing this role, directors are seeking assurance and managing risk. They are concerned with the organisation’s near-term outlook and whether the business will deliver its operational and financial goals.
The board’s steering role is focused on enabling sustainable, long-term value creation. The board is in steering mode when considering strategy and making significant investment decisions. When fulfilling this role, directors must be strategic, forward-looking, and consider a wide range of external factors, so that they can shape management's thinking and make high-quality decisions in alignment with the organisation’s purpose and values.
The most effective boards excel in both roles to deliver short-term goals and long-term vision.
Why does board effectiveness matter?
Boards impact the key drivers of organisational performance, from CEO succession planning and financial strategy to sustainability and culture. By setting the organisation’s strategy and goals, they define the parameters within which decisions are made throughout the organisation. This shapes how resources are allocated and outcomes are achieved far beyond the boardroom. They also ensure the organisation maintains its license to operate by proactively monitoring and responding to risks and complying with relevant laws and regulations.
Many academic studies have explored the link between effective boards and successful organisations. The most powerful reminder of the importance of board effectiveness, however, comes from a different source: the government-led inquiries and lawsuits that follow in the wake of corporate scandals. Their conclusions, and the evidence that emerges through them, highlight the importance of an engaged and effective board in preventing corporate failure, with boards having been implicated in high-profile collapses from Enron and Blockbuster in the US to Carillion and BHS in the UK.
As the Institute of Directors found in their analysis of the UK Post Office scandal, “the root causes were failures in human decision-making, organisational culture and business ethics. Post Office governance – and specifically the board of directors – proved unequal to the task of addressing these issues.”
What are the three pillars of board effectiveness?
Effective boards are built on three pillars: individuals, infrastructure, and information. These pillars form the backbone of how a board functions and delivers impact.
Individuals
Having the right people around the table, and ensuring those people behave in the right way — as individuals and as a group — is essential. Boards with diverse skills, relevant experience, and a culture of collaboration are more likely to be able to navigate complexity, think creatively, and make high-quality decisions.
Infrastructure
Having appropriate policies, tools, and processes in place creates a strong framework for ethical and compliant decision-making. It also ensures board operations are efficient, so that the board delivers satisfactory value-add in return for the resources required to support it.
Information
Accurate, timely, and well-presented information ensures directors understand the drivers of performance while enabling them to think creatively and make high-quality decisions. They need information that covers the relevant topics in appropriate detail to enhance their knowledge and stimulate productive discussions.
What do top-quartile boards do differently?
The three pillars of board effectiveness are key to building a well-rounded board that fulfils its various responsibilities. The most successful boards, however, demonstrate two additional characteristics that enable them to deliver even greater value: they are impact-focused and have an “innovation mindset”.
Impact-focused
Highly effective boards actively contribute to organisational strategy, testing the viability of current business models and building alignment at all levels. When boards are focused on impact, they inject momentum and agility into the organisation’s decision-making, enabling it to go further, faster.
Innovation mindset
High-performing boards are future-focused, lean into emerging trends, and invite external perspectives to ensure the organisation stays ahead of the innovation curve. They value disruptive thinking and encourage a culture of rapid experimentation.
What are the key factors affecting board effectiveness?
A wide range of factors can impact board effectiveness. That is, in part, because boards are not homogeneous; the average public company board has between 9 and 11 directors, all of whom bring a different set of skills, experiences, and personality traits into the group.
Some of the key board effectiveness factors to consider include:
- Composition: The board’s performance will be heavily influenced by its size and shape — for example, the number of members, balance of executive and non-executive members, and the knowledge, expertise, and backgrounds of individuals. A more diverse group will analyse situations from a wider range of angles and bring more ideas to the table, and this ultimately drives better outcomes. A 2023 McKinsey study, for example, found that companies in the top quartile for board-gender diversity were 27% more likely to outperform financially than those in the bottom quartile.
- Culture: A collaborative, open-minded culture that encourages challenge, debate, and the expression of ideas will enable the organisation to tap into the knowledge and expertise of board members. It will also support the board in understanding performance and shaping robust decisions. Research shows that simply giving people “permission to debate” drives better outcomes.
- Mandate: It’s important that the board is clear on its roles and responsibilities, and that the wider organisation understands its role too. This focus and alignment ensures directors can engage with the right issues in the right way, at the right time, and that its performance can be more easily assessed.
- Strategy: The organisation’s strategy shapes what is required from the board. If the business is pursuing an M&A strategy, its board will need a different set of skills and experiences to shape and execute this strategy compared with a turnaround or restructuring situation, for example.
What are the common challenges affecting board effectiveness?
Only 30% of executives rate their boards as “good” or “excellent”. Meanwhile, 62% of CEOs want to replace one or more of their directors. This research by PwC suggests there is significant room for improvement in how boards operate and that some of the factors listed above can be difficult to influence without appropriate tools and resources.
Common challenges include a lack of diversity, inadequate training, crowded meeting agendas, and limited access to timely information. These issues can hinder the board’s ability to address complex issues and make timely and informed decisions.
For example, research by Board Intelligence shows that fewer than half (48%) of directors and governance professions get value from their board papers and the average agenda item gets only 21 minutes of discussion time.
By offering targeted education and professional development opportunities, taking a strategic approach to agenda planning, and providing best practice report-writing guidance to management, boards can overcome these obstacles and improve their performance.
How do you measure board effectiveness?
Measuring board effectiveness generates valuable insights that can help to improve the board’s performance and enhance its contribution to organisational success.
Through regular board evaluations, whether self-assessments or facilitated external board performance reviews, boards can identify their strengths and weaknesses and benchmark their performance against best practice and regulatory standards. This allows the chair and company secretary to identify gaps and take proactive steps to improve the board’s effectiveness. Technology tools can also gather and analyse data on board processes, activity, and impact, to help the board develop a continuous improvement mindset.
According to research conducted by Board Intelligence in December 2024, only 17% of executives believe their boards are set up to harness the opportunity around AI. To navigate new challenges and risks and exploit emerging opportunities, boards need to regularly reflect on their performance. By identifying gaps, boards can take proactive steps to stay ahead of industry demands and deliver forward-looking guidance that helps their organisations to thrive in the long term.
How can you improve board effectiveness?
Improving board effectiveness is crucial for achieving long-term business success. The most effective boards have optimised their processes and practices in the following ways:
- Board composition and culture: A diverse board with directors who have a wide range of relevant skills, expertise, and experiences can significantly impact board effectiveness. You can strengthen your board by conducting regular skills audits, recruiting for diversity, and offering continuous learning.
- Board collaboration and communication: Effective communication and collaboration are essential for a high-performing board. Planning effective meeting agendas, providing directors with high-quality board reports which include insightful KPI dashboards, and distributing materials early, for example, will ensure that board members are well-informed. This drives more productive discussions and more impactful decisions.
- Board focus and priorities: Having a clear sense of priorities, role, and responsibilities helps boards to invest their time and effort where it’s likely to have greatest impact. You can make it easier for the board to focus on what matters by clarifying the board’s mandate, mapping out individual directors’ roles and responsibilities, and engaging in an annual prioritisation and planning process.
- Meeting management: Effective meetings are the hallmark of effective boards. To improve the productivity of meetings, you should clarify meeting objectives, review materials and ask clarification questions in advance, and use technology tools such as a board portal or agenda planning software to streamline processes.
How do you manage a board effectively?
Managing a board isn’t easy; that’s why the most effective boards are led by highly effective chairs and supported by skilled governance professionals.
Effective board management requires a careful balance of soft and hard skills – from a thorough understanding of the applicable laws and regulations to active listening and delicate diplomacy. It also requires:
- Rules of engagement: The chair and company secretary should set clear expectations for both management and board members — for example, around preparation requirements and meeting behaviour.
- Priorities: Boards have a vast remit and limited time. Understanding what matters, and building agendas and meeting materials around these priorities, is crucial for using board meeting time effectively.
- Accountability: A sense of accountability can be achieved by setting and monitoring appropriate key performance indicators (KPIs) for the board that align with its role and responsibilities and the organisation’s overall objectives.
- High-impact reporting: A thorough briefing process for management, a structured approach, high-quality writing and effective data visualisation will ensure board papers are easy to engage with, insightful, and actionable.
- Open communication: Information should be shared with the board on a regular basis. The chair should also encourage an open exchange of information and views by building an inquiring culture and recruiting directors with strong critical thinking
- Continuous improvement: A continuous improvement approach is commonplace in high-performing teams and should also be applied to boards. It’s made easier if the board has a clear mandate, relevant KPIs, and the tools with which to monitor its performance on an ongoing basis.
Delivering these requirements and building a diverse board with relevant skills and experience will enable the board to deliver value consistently and confidently.
