Board of Director’s Governance

Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com

Corporate governance requires extraordinary commitment on the part of the Board of Directors of a company. Board members must evaluate the performance of the company’s management, and must judge the performance of other board members with whom they share duties. Many studies have shown the effectiveness of a board of directors in this area relates directly to the composition of the board and its various committees – and to the effectiveness of its governance.

One limiting factor in board effectiveness is the lack of diversity. Often new board members are added background and interests similar sitting directors. A company striving for excellence should consider new directors as an opportunity to bring in a new set of skills to add to the diversity of the board.

When new board members are added several things have to happen at once. The new member must be brought up to speed quickly, existing board members and key management personnel must be introduced to the new member, and an educational track for the new member should be developed. The new board member should be made familiar with the board’s code of conduct, existing committees, and board governance policy.

The company should conduct new member orientation for newly elected members of the board. The orientation should familiarize new directors with the company’s business, strategies, significant financial matters, operational policies and challenges, code of business conduct, corporate governance statement, principal officers, and other relevant matters the board may be considering in the near future. The new member orientation should include site visits to company facilities, and a formal introduction to key corporate officers and personnel.

Board members should be provided with – and expected to attend – continuing educational opportunities. The fast moving technological and regulatory environments most companies operate in requires companies to review its methods of communication, information handling, marketing and customer relations policies, and manufacturing standards. External companies or internal experts depending on the circumstance can present educational opportunities. However, the level and depth of the program must be sufficient to give the directors the necessary level of expertise to perform their duties.

Measuring performance is the only effective way to gauge success. An effective board will at least annually conduct a self evaluation – or better yet, arrange for an independent assessment to augment this self-assessment – to determine whether or not it is functioning in an effective manner. The internal evaluation should be conducted privately by each director and presented anonymously to the entire board for discussion. The evaluation should not discuss specific strategies or policies but should address methods of board operations and the composition of the board. Boards often discover a lack of certain skills or characteristics that are critical to its functioning. When deficiencies are identified, these talents should be added to the board through new directors. The board should direct its committees to undertake self-evaluations as well. Honest self-evaluations – supported by independent, third party and professionally run ones – will assist the board in reaching the right composition on the board itself, and also on the various committees.

A board demanding excellence of itself will communicate the need for excellence throughout the organization it governs. In many studies, board and committee composition shows up as a key component of success. Continuing education and polishing of skills is also critical to individuals and boards as they strive to stay relevant in the increasingly demanding technological and regulatory environment.

© Dr. Earl R. Smith II

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Related Articles:

• Governance By Visionaries

• Corporate Risk Management

• Sound Audit Committee Governance

• Good Governance – The Compensation Committee

• Successful Board Assessment Models

• Board Assessment – A Critical Part of Good Governance

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