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4 Key Factors to Consider for Board Effectiveness

  Sep 8, 2017
 

Exercising effective leadership at the boardroom can be as rewarding as it is demanding. Board leadership can steer the company to its success or to its failure. How then, should board effectiveness be measured? What factors should board members consider in ensuring success to the organisations they serve? What makes the distinction between effective and ineffective boards?

Carol Musyoka, an outstanding board governance consultant, shares insights on the make or break factors of effective boardrooms. She shares these insights during the Alumni Knowledge Session, sponsored by Standard Chartered bank.

 

The Four P’s of Board Effectiveness

  1. People

Effective Boards should have people at the helm of their strategies. If you don’t get it right with the people that serve you, you won’t get it right with your products and strategies. Important elements to consider as far as human resource is concerned are: What are the productivity ratios; how are the working hours and shifts designed to ensure that the organisation is productive? What does the board need to consider when hiring? What are some of the legal implications associated with attracting and retaining talent? What are the remuneration strategies? Should they be focused on benefits or salary increase? Would the board and the management team rather build or buy talent?   

 

  1. Product

Effective boards evaluate and provide an overview of the organisations performance by questioning loops and gaps in the business operation that are critical for its performance. The organisation’s core business is manifested through its products. Effective boards review the core product of the organisation; the cost of production, pricing, competitor analysis and advise accordingly on the product’s viability of becoming obsolete. ‘The Tenth Man Rule’ is highly practical in providing foresight. This Rule if adopted from the Israelites decision making process, greatly showcased in a fiction movie adaptation, World War Z. When an important decision is about to be made, an Israeli council composed of ten members deliberate on it, but when the 9th member of the council concedes or comes to consensus with the motion being discussed, the 10th has the duty to disagree and provide an alternate opinion which should be considered. This implies that any sound and significant view that has great impact on the core business of the organisation should be subject to consideration. Not considering the inconsiderable can be catastrophic!”

 

  1. Processes

People and processes are what influences the outcomes of the deliverables. This might be performance indicators such as profits, quality or sales. Effective boards map out key supply chain touch points significant for success, evaluate operational risks; what are the top ten risks of the business, their likelihood and its impact and the businesses continuity plan. Can human capital be replaced by mechanical automation?   

 

  1. Profit

Profits are elating as they are associated by gains. However, effective boards must be able to decipher the source of the profit as this ensures that the margins are made from the expected deliverables. Is the organisation loosing greatly by hardly making it even at the operational level? For instance, If the organisation is hardly making returns from meeting and exceeding the operating margins, then the profits are likely to be headed downside.  What are the dividend policies of the organisation, capital optimization, returns on assets and returns on equity?

 

Significant Boardroom Checks

  • Select board directors wisely
  • Family members who are at the board should not be exempted from accounting for their performance targets. The founder and the chair should be able to have a non-emotional discussion on performance targets.
  • Board directors shoulder and take full responsibilities on occasions of liabilities. Therefore, executives aspiring board entry must carefully select the boards in which to serve in and be aware of the risks involved in taking up the job.
  • When setting up a board, it’s important to consider the remuneration plan.
  • The Chairperson sets the tone of the leadership of the board. The most effective boards have effective Chairpersons. The chairperson should be calm, mature, have rich networks and by these qualities, he/she can command the respect of the board. The chairperson should be brave to confront uncomfortable situations, for instance reprimanding poor taste of character from a certain board member.
  • Effective boards work through small committees. This is how work gets done!

 



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