Kath Walters discusses the value of governance in terms of return on investment and uncovers some interesting results.

    Here’s a great question to start the year with – how much does your board cost the company it governs and does it deliver a good return on investment (ROI)? It’s a question that governance specialist, Julie Garland McLellan CSP FAICD, recently explored with 977 senior executives, board members and advisors representing organisations across Australia, with surprising results.

    Calculating the cost to the business of paying the directors is simple. However, few companies surveyed by Garland McLellan had calculated the associated costs – in particular, the amount of time senior executives spend reporting to the board. That figure is astonishing: 43 per cent of respondents said their senior executives spent over 30 per cent of their time reporting to their boards. In not-for-profit (NFP) organisations, that percentage rose to 50 per cent.

    That is a lot of money. “For a company with a board remuneration of $4 million, the total cost of the board, including approximately 30 per cent of the time of the direct reports, would be around $13.5 million,” McLellan writes.

    Even 20 per cent of executive time is a lot. Just 7 per cent of executives felt that they spent 10 per cent or less of their time reporting to the board. Given such figures, it’s clear that the first imperative of governance is for the board to make sure that they are delivering value. One way to do this is to encourage the executive team to turn the tables on the board and measure its performance by taking the following steps.

    What is measured is governed

    Start by measuring the cost: 38 per cent of boards are unaware of how much of their C-suites’ time they consume, and 14 per cent had only a limited idea. As well as the cost of the board’s remuneration, and associated travel and expenses, ask the executive team to calculate the time they spend on responding to the board. Measure the time your board spends on discussion and decision-making. Use this information to create a report of the cost of the board to the company.

    How are you adding value?

    Good governance, clear strategy and managed risk all have a value. Can you clearly articulate it? Can you calculate its dollar value to your company? Have you measured in the past? Add this information to your report to start calculating the board’s ROI for the company.

    Key performance indicators Directors need to apply the same measurement rigor and key performance indicators (KPIs) to themselves as they do the C-suite. Having clarified the costs and the value of the board, start by asking how your board could improve its performance. Can you improve the way you measure the costs of the board and calculate its value? Can you find ways to reduce the time spent by executives and the board executing responsibilities? Give yourselves targets, share them with executives and be answerable to them.

    Manage performance

    What’s needed to reach the board’s KPIs? Do any directors need training, mentoring or performance management? Is the composition of the board supporting efficiency, or do you need to add or remove positions or skills? How could communication between directors and the executive be improved? Is the technology assisting communication delivering the right information to the right people at the right time? Can some tasks be delegated and still done effectively? How can you improve the structure of meetings to shorten the time spent on decision-making without sacrificing integrity?

    Develop powerful questions

    The role of the board is to question the executive. In doing so, it challenges assumptions and puts meat on the bones of ideas and proposals. Can you make the questions you want answered explicit, so the CEO and C-suite are always prepared for them?

    Review and revise

    Once or twice a year, it’s time for the executive team to measure your performance. Start the year with a commitment to making your value to your company explicit and measurable. In doing so, you will strengthen your governance, build great communication with the executive team and create a powerful culture of continuous improvement.

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