The topic of performance management for boards came up in my recent Talent Management Talk with Tania Hannath. As we talk about in the short clip below, the performance management of boards is a positive, major trend that we’re seeing across both listed Australian corporates and the Not-For-Profit (NFP) sector.
In this article, I explore the growth of performance management at the board level in more detail. We start with a quick look at where this recent trend has come from, look at some hard data around the impacts, and briefly explore the similarities/differences in board-level performance management.
Why have businesses started evaluating boards?
In my opinion, there are three reasons why board-level performance management has seen such recent focus:
1. A change in requirements for ASX boards post-GFC
In July 2014, the ASX set out additional governance principles for ASX-listed companies. The first is the requirement for companies to report on how they are evaluating the performance of their boards.
2. A shift in the responsibilities of boards
An international review of corporate governance published in 2005 states:
“As boards are held increasingly accountable for corporate performance, they become more proactive in the leadership of the companies they govern.”
True to the report, in the decade since 2005, we have seen a profound shift in responsibility of boards from management support to organisational leadership. This change in organisational thinking means boards are now being held accountable for strategic direction, change management and formulating corporate objectives. This has two impacts on performance management:
1) It makes performance management for boards critically important, and
2) It gives us tangible, measurable performance indicators for board directors.
3. The undeniable benefits of regular performance management at board level
Now we’re getting to the real heart of the matter – the ‘business case’ for board performance management:
- The opportunity to track and improve the performance of every board function
- The ability to prove performance to all stakeholders, which in turn:
- Increases the trust of shareholders
- Allows transparency for the government, employees and customers
- Individual development and growth of directors
The verified impact of board-level performance management
An increasing number of studies are being conducted into the impact of board-level performance management. As you’ll see, the data makes a powerful case for why performance management at the board level is so important:
- 72% of those who expected board members to participate in formal skills and knowledge development expected revenue to increase. (Perpetual Philanthropic Services, 2015)
- High-performing boards spent seven days a year on performance management compared to four by low-performing boards. (McKinsey Quarterly Review, 2014)
- The board activities most strongly correlated with organisational effectiveness include strategic planning and board development. (‘Board performance and organizational effectiveness in nonprofit social services organizations’, Green, JC and Griesinger, DW, 2006)
- More than 80% of European and US institutional investors say they will pay more for companies with good governance. (Economist Intelligence Unit, 2001)
How does board-level performance management work?
Practically, performance management for boards is very similar to the process for everyone else in the organisation. Great performance management at every level is built on:
- Setting clearly defined standards and goals
- Facilitating regular, 360-degree feedback
- Making continual improvements based on the feedback
As I’ve said before on the topic of best-practice performance management:
“Top athletes, entrepreneurs and leading businesses all have one thing in common. They have goals and they succeed by regularly seeking feedback on their progress to achieving their goals. They use the feedback to adjust the things that aren’t working for them and to know what is working well. Winners are constantly looking for ways to improve.”
Notice how there’s no mention of ‘managers’ or ‘employees’ above. Best practice performance management is not necessarily ‘top down’, and it’s not just for tracking performance. At its core, performance management is about ongoing improvement. That’s a goal (and a process) that all high performers should actively buy into – regardless of if they’re in the graduate program or the boardroom.
It’s fantastic to see that performance management is achieving real traction at board level. As the data shows, performance management for the board as a whole and for individual directors brings great results for the organisation at all levels, and for shareholders and other stakeholders too.
If your organisation has implemented board-level performance management I’d love to hear about your experience. Reach out on Twitter via @cognology.