Governance Bites #80: board evaluations, with Paul Brown

In this episode, Mark Banicevich asks Paul Brown about board evaluations. He asks about the process, frequency, and impacts. Paul talks about internal evaluations, and addressing gaps identified during board reviews. Mark also asks what advice Paul would give to a new director.
Paul Brown is Managing Director of Boardworks (https://boardworks.nz/), who perform governance services such as board evaluations and governance structure reviews. His governance experience includes Stephenson & Turner architects and engineers, Emergency Alliance, Independent Living Services, Panuku Development Auckland and Council for International Development NZ. He was also CEO of ChildFund New Zealand for 17 years. 
#governance, #leadership, #corporategovernance, #boardcraft, #decisionmaking, #makingadifference, #ceo, #governancebites, #boardevaluation

Transcript

0:00

Well, kia ora. My name is Paul Brown. I am managing director with an organisation called BoardWorks, and today we’re going to talk about board evaluations. Hi, welcome to Governance Bites. My name is Mark Banicevich, and as you just heard, today I have the pleasure to spend time with Paul Brown. Paul, thank you very much for your time. Thank you. I appreciate it. Your, as you just said, managing director of BoardWorks, and one of the services you offer is board evaluations. So you’re a really great person to talk to about this topic.

My first question for you: 0:33

What is the purpose of board evaluations? Well, I think boards are charged with holding organisations to account, but they should also be holding themselves to account. So the purpose is for boards to be more effective, and how to do that is to either self-evaluate, or ideally bring in outsiders who can look in and critique and compliment and find out their strengths and weaknesses, so they can improve their performance. Okay. How then can board evaluations lead to more effective governance? Well, hopefully, the process exposes, as I mentioned, strengths and weaknesses and areas for opportunity. No one’s perfect. Boards are dynamic. They’re made up of people, and people always change. So as the people change and as the board changes, it’s always important to keep checking in, and making sure that they’re on track and on purpose, and identify ways to improve. We also don’t have any formal requirements to be a director, either, right. So it is actually quite possible to get into a room, a board of directors that, where no one’s had any formal training. Yep. So I guess it’s probably not unlikely that you’ll capture gaps in the governance and ways that you can for improvement. Yeah. I think it’d be pretty remiss to say of any board, even if they had had formal governance training, that no one’s perfect. We’re always up for learning. So I would encourage all boards to to undergo some form of evaluation, yeah. What is a typical evaluation process? Well, for us at BoardWorks, and there are other providers out there, but for us, it’s all about being human-centred and understanding the nuance of how people behave with each other around the board table. So typically, if there were a process that we were to follow under a client’s instructions, would be normally looking at what we call organisational artefacts: the policies, the strategy documents, the constitution or the trust deed, all the real binding agreements that have set that organisation on its course. We then follow that up with an online survey, which is anonymous. And the survey, and we see a lot of other evaluations which are just purely survey-based, which are what we call click-and-tick, which really don’t provide much insight. So the survey for us is a proxy to say, “Okay, there’s things here that we need to dig deeper into.” And how we dig deeper at BoardWorks is we then do a one-on-one interview, much like you and I are talking now. And that really lets us go through and find out there may have been some questions or some comments in the survey that we want to illuminate and expand on. And that’s where the interview comes into it. So we do that across all the directors, maybe some of the executives as well, bring that all together in a pretty hard-hitting report, which makes recommendations on how that board can improve. The thing then is that we then present that. So there’s some debate and discussion to make sure what we presented or recommended is on track. And then the key part we find is that going back to that board, three, four, maybe five months later, to say, “Five months ago, we made these recommendations. How many of those are in play,"and how how’s it going?” Right? That’s the most important thing, really, isn’t it. Is that follow up to make sure it’s happening. Yeah. Yeah, it is. I mean, I think with in all facets of life, we get busy, and we know we need to improve or do things differently, but we often put them in the “to-do tomorrow” basket. So yeah, it’s our job to follow up and make sure that those recommendations are being implemented. Oh, excellent. What are the key metrics or criteria used to evaluate board effectiveness? Each board’s different, but in saying that, there’s a lot of similarities between boards. So we typically looking are looking at how boards function and what their functionality is like: board systems, their reporting, their relationship with the chief executive, the organisation’s health, how well the board is setting strategy and leading. So there are some categories there that we can dive into. There aren’t metrics per se that we can then score and say, “Well, you’re a 6.2 or a 6.3.” The figures that we do through our surveys are, as I say, indicative, but we do look for averages and say,“Well, you know, a good board should be performing at this level. You’re above or below that. Let’s have a chat.” So yeah. And are you also doing evaluations of individual directors on that board to give them feedback on how they’re going? We can do. And so normally the board evaluation is done as a whole, but we can do individual director evaluations as well, if needed, yeah. Right. Okay. How frequently should boards be evaluated, and why would that, should that frequency be the case? Well, in the spirit of continuous learning, we’d suggest every board has an evaluation at least annually, ideally with an external person, if not a self- assessment. But let’s go back up upstream a bit. One of the things we recommend to most boards is they evaluate themselves at every meeting. So they set time at the agenda to say, at the end, they’ll nominate one of their directors to say,“Okay, Mark, today, would like you to observe the meeting, and when we come to a close"of the meeting, just take 10 minutes to say,‘What did we do well? What didn’t we do so well?" 'And what could we improve on?’ ” So that evaluation becomes baked in and it becomes continuous. So rather than the formal assessment, it just becomes part of the DNA of that board. Right, right. So doing your self-evaluations at every board meeting, and then having ideally an external evaluation about once a year. Yeah, I would suggest that would be good. Yeah. Okay. What challenges do you encounter during this process of board evaluations? There are lots. I mean, we’re dealing with people, human behaviour at its best. I think one of the overall challenges is that boards, and when you get put onto a board, you tend to find that it’s people who have been through successful  careers. They’re highly intelligent people, and they’re highly opinionated people. That’s why they’ve been put on a board, which are all their strengths and assets. But in doing so, it’s we’ve got to be very, very careful in terms of how we challenge, or how we critique that board that seems to be constructive, and not punitive. So one of the challenges is, yeah, how do we show to the board that they too must be accountable? They’re putting a lot of accountability onto their management team. How do they put that accountability on themselves? So that’s one of the challenges we sort of encounter. Okay, right. You talked before about the gaps that you might identify during this process, and feeding those back, and then coming back to the same board about five months later and saying,“How have you gone implementing them?” What are some of the effective methods for addressing that? Firstly, I guess, what are some of the common gaps? Maybe you give some examples. And then how could they be addressed? Well, I think what we’ve learned through the process, too, is that most people can manage at any one time three or four things. So while we could come up with a shopping list of a dozen things that this board could improve on, it’s probably best finding the, you know, what are the critical three things that this board could focus on to address in the next 3 to 12 months that would make a huge lift in its effectiveness. So coming up with a tailored list is quite critical first up. But yeah, there are some common threads that boards, we see across boards, whether they be in the government sector, privately held, or listed, or even not-for-profit or for-purpose boards. So there are common threads that we see where role clarity seems to keep popping up. That boards have a gravitational pull to get into the operational, that I think affects everyone at the at the governance table. So that’s something we see quite consistently. Yeah. Okay. And how would you address that one? Well, it’s making sure the board understands their purpose. They’ve got a clear charter. They’ve got job descriptions, and that they understand that they’ve delegated the duties clearly to the chief executive into management. And actually, making sure that that framework is set in place. Right. So it sounds like, and that may be an example of a solution for other gaps that you identify, as well, that it’s in the documentation, it’s in, as you say, the board charter, it’s in the job descriptions, it’s in the governance framework. Agreed. And I think, you know, where it does go beyond that is in the governance mindset. And we’re big advocates of John Carver’s [author of “Boards that make a difference”], a little bit of, a little bit purist at times, but we do encourage boards, the role of the board is to focus on the ends of the business. Management or executives are there to focus on the means of the business. And we often see boards encroach in the means space. We’re going to drag them back and say,“Now, your job is to set policy, make decisions, and really create the future for the organisation.” Right. Okay. Can you maybe share a case where you’ve, blinded obviously, you’ve done a board evaluation, you’ve given some feedback, and it’s actually led to some significant improvements in governance and outcomes for the company or for the entity? Well, hopefully, all our evaluations lead to good outcomes. And we’re not at liberty to disclose client names, but we have seen good uptake. We worked with a government entity in the co-governance space, which we saw was really grappling with who its stakeholders were. So one, working with them and finding out who their primary stakeholder was, was a real good challenge, and for getting that whole board to accept that they had one primary stakeholder and only one, that led to some really powerful outcomes that provided more focus, more clarity, and better strategic outcomes. So that was a good example. Great. Thank you. I’ve got one final question for you. Yeah. It’s a little bit off topic. What advice would you give to a new director? Oh, it’s a hard one, isn’t it? I think for any director, new or old, but particularly new, is just be curious. Just don’t be afraid to ask questions, lots of questions at the board table. There’s no such thing as a stupid question. But, so always ask. That’s what your role as a director is there to do. And also, as a new director, really understand how the machine works. How the business makes money, if it’s a for-profit, or how it achieves impact, if it’s a for-purpose organisation. And be really obsessive about that. Really fall in love with, how does this machine work? So the sooner you get to know that as a director, the better, I think. Great, Paul. Thank you very much for your time. I appreciate it. You’ve welcome. We've had a good conversation here. Board evaluations is an area that I’ve been interested in for a while, particularly around the board tenure, and is there a point at which board should say,“Your time is up. You have to go,” and are there occasions where a board member could actually still be adding value? And that does happen, right. Yeah, absolutely. And to me, I think board evaluations are the way to avoid forcing people off the board because their time is up. Yeah. To have people recognising themselves that, “Okay, I’ve been here for six years.""I’ve been here for nine years, and probably need some fresh blood. I’m probably not adding the value"that I was at the start.” Yeah, I agree. And I think a board evaluation is a really strong way to achieve that, rather than having a constitution that says,“You have a maximum number of terms.” I agree. And I think there’s always that tension where, how can you, as a board, maintain that IP [intellectual property] or that institutional knowledge that you’ve accrued over time with a long-serving director, versus how do you bring in new ideas, fresh ideas, and fresh thinking? But on that note, you know, you asked me before, “Advice to a new director?” I think part of due diligence for any incoming director, before you’ve even said yes to becoming a director, would be, I’d be asking the chair,"Can I see your last evaluation?" And if they’re not prepared to share that, that to me would be an alarm bell. But as they share it, there should be some good, honest, hard truths in there. It shows the board is learning. It shows the board is prepared to improve its own performance. I’d find that really encouraging. That’s a really good pickup. Thank you very much. Yeah. Okay, I look forward to catching up again soon. Thanks, Mark. And see you next episode. Thank you. Thank you for watching this episode of Governance Bites. We have more episodes on YouTube and your favourite podcast channel, where I interview directors and experts on various topics relating to Boards of directors and governance. We’d love to see you back, and please like, subscribe, and share the videos and podcasts.