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$700,000 Is A Lot of Money

February 11, 2019

Posted in: WATSON Views

Financial oversight is a key board responsibility, for organizations large and small. We often see unchecked spending scandals, à la Ryerson Student Union, at smaller organizations without robust internal controls and proper financial oversight by the board. Without malice or negligence, these organizations often lack financial expertise at the board level and simply just don’t know what questions to ask.

In Ryerson’s case, while they have a Finance Committee and several publicly-available financial policies, they likely lack financial expertise on the board as the board is largely populated by students. This is a considerable organizational risk, with significant financial, reputational, and human resource consequences.

When financial expertise is lacking on the board, there are options available to help fill this crucial gap. Some boards bring on external directors or committee members in a governance or advisory capacity to bring this important skill-set to the board table or finance committee. In Ryerson’s context, there are likely countless alumni and faculty members qualified and motivated to fill this role.

It’s an expensive lesson to learn.


Mission Control

January 18, 2019

Posted in: WATSON Views

How Can the Board Really Know What’s Happening with Culture, Leadership, and People Risk Inside the Organization?

“We’ve made a commitment to inclusion and diversity. How are we truly doing, beyond demographic stats?”

“We need innovation everywhere, at every level – how do we know if we are creating the right conditions and seeing impact?”

“If we’re going to still be relevant in 5 years, we need different kinds of leadership and talent today. Are we getting there?”

Boards are increasingly aware that people, leadership and culture are critical to success in achieving their strategy, while also being a source of risk.

As advisors to those boards, we hear them asking the right questions. The challenge is that it’s tough for them to get good answers.

Directors either get too much data or vague reassurances from executives, who may themselves not know how to get trusted insight. In some instances, organizations get locked into an overly-scientific approach, delaying sharing data until they have a provable causal model. Or they discover that in order to provide “perfect” insight, they need new systems, metrics, and practices – which gets bogged down in cost and delays.

Boards need to understand the health of the business with respect to people and culture. Increasingly, we find ourselves recommending the use of people dashboards – not just the handy interface that your management systems make available, but something specific to the priorities of your organization.

How do you get there without getting bogged down?

  • Start by aligning the board and management on what is relevant and important in terms of people and culture – prioritize and invest effort in the top 1-3 things needed to drive your strategy and achieve your purpose
  • Take a cue from the world of “Agile” – get something out there quickly into the hands of the “customers” (in this case, directors), get their feedback, and learn
    • Don’t wait until you have perfect data, the ability to measure every indicator you’d ideally want, provable causality, or perfect graphics – share what you can, with whatever caveats a reader needs to know, and then learn and improve
    • If you don’t have a perfect metric – or if there is too much lag time – consider what indicators or signposts you could look for
  • Keep the focus at the right level; directors need accessible insight they can understand quickly so they know what the right questions are, and when to ask for more detail

Our metaphor is Mission Control: not in the driver’s seat but able to monitor the health of the mission and be alerted when something is off track. You won’t build the whole control room right away, but let’s get those first few critical sensors and displays up and running.


New Year’s Resolutions

January 4, 2019

Posted in: WATSON Views

By: Heather Kelsall, Senior Governance Analyst

You may not make it to the gym past January but set some new year’s resolutions with your board and you might just surprise yourselves come 2020.

Here are 5 ideas to start the conversation:

1. Act on Diversity

Start by defining what your board means by diversity and what a diverse board might look like in your context, then build diversity considerations into your skills matrix.

2. Educate Yourselves

The world is rapidly changing, and boards must be ahead of this change. Make a plan to educate your board and individual directors on governance and emerging issues and ensure your board is equipped to govern in a climate of complexity and disruption.

3. Check in on CEO Succession

If you haven’t yet had the conversation, this is the year to put it on your board calendar. No matter where your CEO is at in their tenure, it’s never too early to plan for the future, understand the talent pipeline and develop potential successors.

4. Understand Your Board Culture

Signal the importance of culture by looking inwards and assessing the board’s culture. Seek to understand how directors view the board’s culture and identify ways to sustain or improve culture for the benefit of the
organization.

5. Evaluate Something New

Tired of filling out the same rote board evaluation survey every year? This may be the year to finally introduce a peer evaluation process, take a deep dive on committee performance, or conduct a targeted evaluation of your board’s renewal practices.

 

What are your 2019 governance resolutions?


Customize Your Approach to Peer Evaluation

July 4, 2018

Posted in: WATSON Views

Find out how to prepare for a successful peer evaluation. Read Are You Ready for a Director Evaluation – Part 1 of WATSON’s Year of the Peer series.

Part 2 of WATSON’s 3-part Year of the Peer series

Shared purpose – check.
Evaluation ready – check.
Now what?

Whatever you do, do not just do what other boards are doing. Peer evaluations are nuanced and deserve a customized approach. After all, when it comes to governance, one size does not fit all.

9 Steps to Customizing Your Director Evaluation Process

Design a peer evaluation process that works for your board by ensuring there is agreement on the following questions:

1. What is the objective?

The true purpose of a director peer evaluation exercise is not to create a report card for directors but to provide each director with a sense of how fellow directors view their performance, where they are seen to perform well and where their peers see opportunities to contribute further to the board’s performance. Determine what your board hopes to get out of the process and work backwards from there.

2. Who will lead the process?

While the Governance Committee or Chair may lead the process internally, many boards use an outside party to gather and analyze feedback (either through the use of surveys or interviews). An externally led process offers the most confidential environment so directors feel comfortable sharing candid feedback on their fellow directors, which is central to a meaningful peer evaluation. Whether or not an external consultant is used, consider who is best positioned to lead the process on behalf of the board.

3. Who will be evaluated?

To be truly effective, all directors should receive personalized, confidential feedback on their performance. Directors may also receive feedback on their contribution as members and/or chairs of committees. The Board Chair should also receive feedback on their chair role, either through a separate chair evaluation process or as part of their director evaluation report.

4. Who will participate in the evaluation?

Most often, only directors provide feedback as part of a director evaluation process. However, when dynamics and board/management relations and strong, some boards also seek feedback from members of management who engage regularly with the board.

5. What will be evaluated?

A well-rounded evaluation balances the distinctive set of competencies that each director brings to the boardroom with the general competencies expected from all directors, as set out in a Director Position Description or Terms of Reference. The criteria for measurement typically include:

  • Level of knowledge in key areas (e.g., industry knowledge, business knowledge, financial acumen)
  • Observable, behavioural characteristics (e.g., preparation, strategic perception, boardroom contribution, boardroom style, interaction with management)

6. How will the feedback be collected and managed?

As with board evaluations, interviews typically yield deeper and more nuanced insight, although it is quite common for boards to seek feedback on individual director performance by way of a structured survey. Many boards opt to do both. When using a survey, include both quantitative and qualitative questions. Use open-ended qualitative questions to elicit deeper feedback, for example: How would you describe this director’s boardroom style (i.e., interaction with fellow directors and management)?

Provide directors with a primer outlining tips on how to share constructive feedback (specific, low in judgement and supported by examples) and make their comments as clear as possible to avoid misinterpretation.

If management is providing feedback as part of the process, care should be given to how they provide feedback. Often members of management feel more comfortable sharing qualitative feedback through open-ended survey questions or confidential interviews.

7. What will be done to ensure confidentiality?

Feedback is typically gathered from each participant on an attributed basis so the person leading the process can clarify feedback with the author as necessary. However, feedback is shared with each director on an unattributed basis. Careful attention must be paid to diligently strip language, phrases and examples from feedback that might be traced back to the author.

Regardless of who is leading the process, their ability to ensure strict confidentiality of all feedback is critical to the integrity of the process.

8. How will the data be compiled, analyzed, interpreted and presented?

Data is typically compiled, analyzed and interpreted by whoever leads the process. However, when internally led, analysis and interpretation can be susceptible to unintended bias and those leading the process should take great care to analyze and interpret the feedback in an objective and consistent manner. Results are typically presented in confidential written reports, seen only by the director in question and the Chair.

For quantitative feedback, it is common practice to provide each director with a summary of the feedback, showing the director’s self-assessment and the average assessment of the director by peers (and sometimes the average assessment of the director by management, if sought). For qualitative feedback, the feedback is categorized into key themes supported by specific comments or fed back as is. In the case of the latter, ensure those providing feedback are aware that their unedited feedback will be shared with directors (minus anything inflammatory or inappropriate) – this often changes the nature and tone of feedback provided.

When management provides feedback, it is important to consider whether their qualitative feedback is presented separately or woven into the director feedback. Often when the management team is small, their feedback is incorporated into director feedback to protect anonymity.

9. What will we do with the results?

Once the feedback has been gathered, the Chair leads a one-on-one coaching session with each director to review the feedback. If an external consultant is involved, typically the consultant first shares the results with the Chair and coaches them on how to deliver the feedback. In some situations, the consultant and Chair may jointly deliver the feedback. Some boards follow up with a written memo outlining specific agreed upon actions.

The Board Chair, Governance Committee or full board are often provided the average board and management rating for each question to guide board development.

As with board evaluations, many boards struggle with implementation and follow-up of director evaluations. To overcome this hurdle, we recommend directors acknowledge the feedback received and any action items discussed with the Chair. It is also useful to invite directors to reflect on their own performance – what do they think are their major contributions and where could they improve their contribution. Together, the Chair and director should agree on a follow up plan, based on the feedback provided in the evaluation.

Ask WATSON

Hey WATSON, how does the board’s skills matrix fit into the director evaluation process?
One innovative approach is to use the director evaluation process to assess directors against the board’s skills matrix. Instead of having directors self-assess their own skills, each director is asked to identify the areas in which other directors are seen to make a significant contribution to boardroom discussions. The results show the overall perceived strength of the board in relation to the stated needs.

Peer evaluation is an evolving practice. While some boards are reluctant to become too formal in their approach to individual evaluation and feedback, those who embrace the concept of feedback have found the process to be an important part of director development and continuous improvement.

Stay tuned for Part 3 of the Year of the Peer series: Mastering Peer Evaluation Feedback

 


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