Your Post-Crisis Board EvaluationBy: Jeff Kirschner, Deborah P. Rubin and Paul C. Winum
Boards of directors and management teams have been facing unprecedented challenges this year. First, they are navigating the global pandemic and economic crisis and its aftermath. COVID-19 has forced companies to quickly adapt and alter the way they go to market and serve their customers. Supply chains have been disrupted, customer interfaces have shifted, and consumer preferences and habits have changed as well. Second, directors and management teams are also coming to terms with the reality of the systemic and unending racism and unnecessary police violence against people of color within the U.S. and the actions they are going to take. More than ever before, directors will need to serve as catalysts and role models for driving toward greater diversity, inclusion, and belonging within their boards, the companies they serve, and the broader communities of which they are a part.
Every organization has been wrestling with how the health and economic crises have impacted their company, including the way that the board and management team have navigated the ensuing threats and opportunities. A recent Corporate Board Member article, “The New Normal In Governance: A Paradigm Shift?,” highlighted the ways some boards have responded to these challenges. One recommendation the directors who were interviewed offered was to conduct an after-action review of the board and management team’s responses to the COVID-19 crisis. Capturing the collective views of board members regarding what went well, what did not, insights about the board, the company, and the senior team and the implications for moving forward allows the board to ensure that lessons learned the hard way do not have to be repeated. And this process can also increase the ability of the company to build upon the opportunities and strengths that emerged. One approach to doing this is to incorporate the review into the board’s annual evaluation process. Here are some suggestions about how to do that.
What to Include in the Board Evaluation
A standard board evaluation, to be thorough, should include inquiry about each dimension of governance that contributes to effective discharge of a board’s oversight responsibility. These dimensions include the board’s purpose and strategy, composition and structure, risk management and safeguards, board culture, board and CEO partnership, and board renewal. More information on these dimensions is available in this RHR blog on board evaluation: (https://www.rhrinternational.com/thought-leadership/blog/evaluating-your-board-seven-areas-assess).
However, with the unique circumstances presented by both the COVID-19 pandemic and the social unrest stemming from ongoing and systemic racial inequities, this year’s evaluation of these dimensions should be conducted through a lens focused on how effectively the board functioned in meeting the challenges posed by the pandemic and the implications moving forward regarding addressing systemic inequities and promoting diversity and inclusion. Here are a few areas for the board to examine:
The Board’s Value Add
Given the rapidly emerging challenges and opportunities companies have navigated over this year, great questions for directors to ask themselves are:
- What value did the company need our board to contribute, and, how well did we deliver that value?
- In addition to good governance, what did we bring to the organization that significantly helped?
- What could we have done differently that would have brought even greater, more relevant, or timelier impact?
Many directors found that the pandemic forced an ongoing reality check regarding how robust and relevant fundamental aspects of the business remained. While many companies are finding ways to weather the storm or even thrive, capturing the learnings and implications of these changes will be important.
- What did the pandemic teach us about our company’s strategy, business model, capital structure, and supply-chain dependencies?
- What are the implications for us moving forward?
- Given what we know about our company, the business environment, and the market trends, what do we need to accelerate or revise in terms of major decisions or actions we had been considering?
- How do we ensure ongoing alignment within the board and with the senior team as we continue to engage in scenario planning?
Risk Management and Emergencies
While a small but significant number of companies had anticipated some of the potential risks and had plans in place to cover situations similar to the pandemic, others were caught flatfooted. Sometimes this level of discipline was driven by the company’s chief risk officer or other senior executives, while sometimes this preparation was catalyzed by the board. Key questions to ask include:
- How well did the company respond to the crisis?
- What did it fail to anticipate?
- How quickly did it adapt?
- What, if any, adjustments need to be made in our company’s risk assessment process and emergency preparedness?
- Do we know where emerging potential risks are moving forward, and have we taken the necessary steps to mitigate them?
- Finally, do we have a well-defined emergency succession plan in place, not just a name in an envelope? This may be an obvious question given the pandemic, but unfortunately the answer is not always “yes.”
Ironically, many companies found themselves moving almost overnight on actions involving technology, working remotely, or reaching their customers virtually that they had previously deliberated for months, if not years. Those that were already leveraging technology to a high degree as part of their business model and had already launched significant investments in this area and/or already had established processes for working virtually faced considerably less disruption. Even those who found this adjustment to be a heavy lift are realizing that a virtual model may remain viable, at least in part, for their company moving forward. Many are choosing to keep some form of this virtual approach until a vaccine is found.
- Given this, another area to probe among directors is, are our technology capabilities, IT infrastructure, and cybersecurity protections adequate for what we will need in the future?
The pandemic offered an unexpected in vivo test of how key leaders in companies respond in a crisis, how well they navigate through ambiguity to make timely and sound decisions, and about their ability to engage, focus, and rally others. Directors have found, to their surprise, that there was often a broader range of leadership effectiveness demonstrated by those in senior roles and in the talent pipeline than they had anticipated. Some executives demonstrated exceptional abilities to lead while others became stymied. Key questions for directors to ask themselves are:
- What have we learned about the strengths and development needs of mission-critical talent?
- What changes need to be made to our approach in recruiting, retaining, and evaluating talent?
- Given that many boards and CEOs are coming to the same realization about their talent pipelines, what steps do we need to take to keep those who really stood out during these times to ensure that they are not poached to fill gaps in other organizations?
- Finally, how well do we understand the company’s culture regarding creating a common and compelling purpose, embracing diversity, and creating a sense of belonging?
The rapid pace of decision-making placed a higher expectation on board members to remain current, have a sound understanding of the business and its financial aspects, and be able to quickly home in on what is important. Companies also looked to their directors to help leverage their networks to understand what other companies were seeing, how they were responding, and to help quickly connect senior leaders to needed expertise or resources. While boards have always expected their directors to be prepared for meetings and ready to contribute, the pace of events took this need to an even higher level.
- Given this experience, what have we learned about the strengths and development implications for our board’s composition?
- What do we need to solve for in terms of the composition of the board (e.g., requisite expertise and acumen relevant to our business, strength of the directors’ networks to access resources on behalf of the company, and the diversity of the board)?
- What targeted education or development do we need to bring to current board members?
The rapid switch to working virtually during this pandemic impacted boards as well as their companies. In addition to the logistics involved in making this change, board members were forced to engage with one another in high-stakes circumstances without all of the interpersonal cues that were available during in-person meetings. Board leaders noted the new challenge of detecting the nuances and managing the interpersonal dynamics in a virtual environment, all while making rapid and significant decisions. Key questions in this evaluation should include:
- What are the lessons we learned and can apply in the future about our board’s culture and how we communicated and made decisions in a virtual operating mode?
- What should we build upon, and what do we need to change?
Diversity and Inclusion
The Black Lives Matter movement has highlighted the board’s responsibility for ensuring their organizations are recruiting and growing leaders, developing strategies, and evolving cultures that promote diversity, inclusion, and a shared sense of belonging. For those companies that have already implemented clearly defined action steps, the board evaluation represents an opportunity to revisit the effectiveness of the company’s diversity and inclusion programs and reestablish their importance within the organizational mission. For those that are coming up to speed, there will need to be a call to action and a clearly articulated diversity and inclusion commitment from the top of the house. Some relevant questions for the board evaluation to examine include:
- How does the company’s culture support or inhibit an inclusive, diverse work environment?
- Where does bias sit within the organization, its processes, recruitment, and talent pipeline?
- What are the company’s development and philanthropic efforts in the minority community?
- Does the company have a minority supplier program, and if so, how effective is it?
- Where has the company missed out on the value that a more diverse workforce can bring?
- What is the board’s need for education on this most critical topic?
- How will the company put a concrete action plan into place to ensure accountability?
- What are the implications of diversity, equity, and inclusion for the board’s composition and culture?
First and foremost, as with any standard board evaluation, ensuring the utmost candor from directors is critical, and the process for soliciting input will have a significant impact on this. Whether performed by a lead director, nominating and governance committee chair, or an outside facilitator, board members must feel that their evaluation input will be kept in confidence, and that the process for summarizing the themes will be balanced and unfiltered by other agendas. Given that board evaluations this year will most likely need to be conducted virtually rather than in-person, the video or audio technology selected must be completely secure.
Second, it is recommended that confidential management input be included from those members of the management team who have interacted with the board and its committees. That input can be collected through both an online survey and through interviews conducted by the point person doing the evaluation. It is easy to overlook the shadow the board casts on the senior team for good or ill and to miss opportunities for the board to make an even greater contribution to the organization. Senior executives offer perspective and insights on board functioning and impact that typically do not emerge (or the implications are less clear) when the input is solely limited to board members.
Third, it is recommended that a self-evaluation be completed by each director assessing how they contributed during the year and how they might add more value in the future. This encourages self-reflection, creates the expectation that evolution and adaptation is a natural part of the role, and sets the stage for a candid and constructive discussion regarding how to maximize the value they bring to the board moving forward. While not yet completed by the majority of boards, there is also a best-practice trend toward soliciting feedback for individual directors as part of the board-renewal process.
Finally, the board should set aside sufficient time on the agenda to discuss the results of the evaluation and their reactions, identify next steps, and build in a follow-up process to track the execution of the action steps. This discussion may take more time than might be typical when discussing the results of past board evaluations, given the chance to learn and grow from this once-in-a-lifetime confluence of events. Depending upon what the board evaluation highlights, the next steps may range from diving more deeply into a key issue as a board to specific actions that can be implemented by a committee, board leadership, or individual directors. The key is to ensure that the board actually evolves based on what it has learned from the process.
As our colleague, Joanna Starek, noted in a recent Corporate Board Member article “Twenty-First Century Leadership for Twenty-First Century Problems,” the complex, rapidly emerging issues of this century require a significantly different approach to problem-solving than in the past. We are globally connected in ways we are only beginning to appreciate. Today’s and tomorrow’s issues require not the heroic individual leaders of yore, but collaborative leaders who actively embrace complexity, surface root causes of systemic issues, and engage broader populations. The need to challenge cherished but divisive or limiting assumptions and mindsets and find new solutions will also extend into the boardroom.
While an annual board evaluation is a standard step taken by most boards, rethinking the approach to this year’s process will help to ensure that the boards and companies do not just survive these experiences, but are able to adapt and thrive because of them. Implementing these recommendations will enable a board to do a meaningful, relevant assessment of both its strengths and opportunities to further its value and contribution in guiding and overseeing the organization it is charged with directing. Individual directors, board leaders, and the board as a whole need to ensure they are evolving faster, or at least as quickly, as the companies they govern.
This was originally published in The Corporate Board September/October 2020 Edition.
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