5 days ago
Why Board Dynamics Matter: Seven Key Considerations For Effectiveness
Susana Sierra is CEO of BH Compliance, which measures the effectiveness of corporate governance programs, and corporate governance.
How prepared are boards of directors to face today's increasingly uncertain and demanding global environment? Answering this question is key, given the strategic role boards play in companies. And the answer lies in each member's individual experience as well as their ability to function effectively as a team.
The way board members interact, how they make decisions and how power is distributed should not be left to chance. Synergy among all members and the commitment of each individual are crucial to ensuring the board's effectiveness and successfully addressing current challenges through strong and resilient governance.
This is what is known as board dynamics, and it is a critical factor for business performance. Hence the importance of having people who, in addition to being professionally prepared and capable of contributing individual knowledge, have teamwork skills and contribute to a dynamic, thoughtful and strategic board.
Well-structured board dynamics must include the ability to constructively challenge management, make informed and deliberate decisions, promote diversity of thought and avoid both the concentration of power and stagnation.
To achieve good board dynamics, here are my seven key considerations:
1. Ensure a balance between seniority and renewal.
It is essential to maintain an equilibrium between the experience of those who have served on the board for a longer period of time and the fresh contribution of new members. This combines in-depth business knowledge with renewed perspectives. It is also important to prevent long-standing members from hoarding power or leadership solely because they have held the position longer. Therefore, clear and established mechanisms must be in place to ensure regular board member turnover.
2. Periodically change chairs and key positions.
Leadership roles should be rotated for both the board as a whole and committees, to avoid entrenched power dynamics and prevent directors from expecting automatic reappointments. Egos and competition for greater power can hinder the group's ability to collaborate.
3. Define leadership structure.
Boards must establish a leadership structure, meaning they must clearly define who takes on the role of coordinating and guiding the group's work. Independent directors should be included, as their presence allows for greater objectivity, diversity of opinions and openness to debate.
4. Conduct continuous evaluations.
It is essential that evaluations of the board be carried out, both as a collegiate body, and of its members individually. Ideally, these should be conducted regularly, by an external party. Furthermore, the results of these evaluations should be translated into concrete actions for the short, medium, and long term.
5. Maintain communication with investors.
Maintaining frequent, transparent and responsive engagement with investors' concerns is key to building trust, preventing conflict and aligning expectations.
6. Supervise succession plans.
Companies must clearly establish succession plans for the CEO and key executives. As part of this dynamic, the board of directors plays a key role in reviewing, approving and updating the plan, as well as identifying emerging talent.
7. Be informed and create action plans.
The company's performance and results in various external indicators should not merely be reported to the board of directors, but become a topic of discussion in their meetings. The results should also trigger concrete action plans.
Achieving good board dynamics requires all of these key elements. Having a diverse, cohesive and qualified team that works together toward a common purpose, challenges itself and operates under defined policies that allow for a clear and fluid dynamic results in a competitive advantage. This helps companies respond more quickly and decisively to the demands of today's rapidly changing world.
Today, leadership is more important than ever. Knowledge is no longer enough; boldness, resilience and new skills are required. Companies need directors who don't just sit in a chair but are capable of viewing the landscape in all its complexity; who exercise a strategic, comprehensive perspective; and, above all, who are willing to listen, question and adapt.
So, let's ask ourselves the question once again: How prepared are boards to face today's increasingly uncertain and demanding global environment?
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