In order to identify relevant practices, it is necessary to rate the performance of boards.
High-performing boards: What’s on their agenda?
McKinsey Quarterly, April 2014
There is growing focus on the practices of high-performing boards. In order to identify relevant practices, it is necessary to rate the performance of boards. It is important to bear in mind that assessments of board performance are generally subjective.
A McKinsey Quarterly survey of 772 directors worldwide revealed that the distinction between higher and lower impact boards turns on (i) the breadth of issues directors tackle; and (ii) the time dedicated to them.
Directors reporting that their boards have a low to moderate impact undertake "basic" practices (e.g. ensuring compliance) in respect of key board functions. Directors reporting that their boards have a higher impact undertake basic practices, but also add a series of other practices in every function. In the area of strategy, for example, this means becoming more forward-looking.
Directors reporting that their boards have a greater impact report spending significantly more time on board functions, on average, than directors serving on lower-impact boards. Directors on "very high impact" boards work twice as many days as directors on moderate or low-impact boards. A significant proportion of this extra time is spent on strategy.
David Pralong, a senior partner of McKinsey, commented to AICD: “[we] observe an increasing number of boards becoming engaged in medium-term strategy setting, especially with regard to anticipating potential shocks and disruptions. The relative freedom from the short term demands placed on executives allows these directors to ‘look around the corner’. In the recent past, this has, for example, allowed mining companies to maintain a dual focus on productivity and growth. Similarly today, a number of non-executive directors are leading the thinking on digital readiness in their organisation.
“In our experience, the quality of the strategic formulation at board level benefits from regular interaction and external stimulation. Regular interaction is important to allow all members of the board and management to fully explore the questions at play, and then to iterate frames of reference and solutions. Too often, the strategic debate concentrates on short, occasional decision sessions where the format is at odds with the uncertain and evolving nature of the major strategic decisions. External stimulation, through international visits or exchange with companies in other sectors, enhances the board's understanding and plays an important role in de-biasing the choices in the boardroom.”
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