Fine-tuning the hospital board: 5 steps to better governance

Many board directors believe their peers could do a better job. In fact, almost 40 percent of board directors say someone on their board should be replaced, according to PwC's "2015 Annual Corporate Directors Survey."

On top of that, corporate governance circles are demanding more diversity. A whopping 95 percent of directors surveyed by PwC said adding diversity was important, and 84 percent felt a more diverse board would enhance effectiveness. This increased attention to diversity coupled with peer dissatisfaction indicates directors are turning a critical eye on board composition — and with good reason.

Filling board seats with the right mix of people is crucial to success, according to Denise Kuprionis, president of The Governance Solutions Group, a Cincinnati-based board advisory practice. But even the best boards need to evaluate composition as a company shifts strategy, which is increasingly the case, according to PwC. The survey indicates directors are beginning to look further ahead — 58 percent said their company's strategic timeline is five or more years, up from 48 percent in 2011.

"As company strategy shifts… board composition must be revisited to affirm alignment between the support a company's strategy requires and director expertise and experience," Ms. Kuprionis said in a webinar on board evaluations hosted by Passageways, an enterprise collaboration software firm.

Here are five steps board chairs can take to evaluate composition and effectiveness, based on Ms. Kuprionis' discussion in the Passageways webinar.

1. Identify whether your board's needs have changed
"An enlightened board evaluates and really dives into company strategy so that they know what skills are needed to drive the business forward," said Ms. Kuprionis. She suggested annual evaluations using a skills matrix.

This chart helps a board map out board members' strengths and experience, identify gaps and consider future needs as it addresses succession planning. Most matrices include a handful of core attributes, such as financial, industry or operations expertise, but after that Ms. Kuprionis advised customizing this matrix based on company culture and what skills would best support the management team. This is a point when boards must think critically about diversity, including gender and racial diversity as well as a range in tenure and knowledge.

2. Ease into composition decisions
Once a board's needs are identified, evaluations help measure further effectiveness. Evaluations range from full board performance or board relations with management, to peer reviews to self-assessments. No matter the form, evaluations can be difficult to introduce if a board is unaccustomed to them. "Let's get the elephant out of the room and face the fact that nobody likes evaluations, most of all directors," said Ms. Kuprionis. She suggested dealing with that discomfort upfront and slowly introducing the concept. To get a board in the correct frame of mind for evaluations, she suggested first giving directors some light reading on good governance practices and evaluation trends. Eventually, evaluations can become an agenda item so the board can discuss an approach.

3. Do self-evaluations first
Individual assessments are a great launching pad into the world of evaluations, according to Ms. Kuprionis. A self-assessment comes in the form of a brief online or paper survey and the results are often kept private. The process lets directors reflect on personal performance. "It's really an internal look and if you are just starting to do this, directors are a little nervous," said Ms. Kuprionis. Reflection alone will oftentimes motivate discussion organically. Sometimes boards formally ask a lead director or outside individual to facilitate a dialogue based on recurring themes from the self-assessments.

4. Step back to assess the aggregate
There is no magic combination that creates an effective board. Effectiveness is a mix of company metrics, board performance reviews, shareholder feedback, participation, board culture and CEO engagement. It is tough to assess this aggregate in surveys alone, but it is essential to understanding if a board is positioned for the future, according to Ms. Kuprionis. Sometimes a full board evaluation is done through individual interviews with each director, but often the best evaluation tool is an independent observer. Sitting in on meetings can be very telling, according to Ms. Kuprionis. Additionally, at the end of each meeting, the board should determine if they accomplished what they needed to, identify if anything could have been done better and if they had the right materials to make decisions. This can help determine what goes on the next meeting agenda.  

5. Refresh your talent with outside expertise, new knowledge
Most boards are comprised of highly intelligent, successful individuals looking for the company to succeed. So why do evaluations? "The answer is clear to me," Ms. Kuprionis said. "The best boards want to get even better." This improvement may mean a board needs new directors, but that is not the only way to refresh governance. Many boards get hung up on tenure, but Ms. Kuprionis believes there is no hard and fast rule for term limits. Instead, boards should consider the educational resources they provide to members. Effective board education may include external speakers or updates from employees outside of the management team.

Ultimately, the point of evaluating composition is not to root out what's wrong with a board, it's to identify how it can improve — and how it can improve more efficiently.

To view the full webinar, "How the Best Boards Are Made: Evaluating your Board Composition and Effectiveness," click here.

 

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