Better board process for better company results.

Author:White, B. Joseph
Position:BOARD PROCESS: COVER STORY

To be effective, boards need not only the right people and structure. They also need good process--doing the right work in the right way.

Experienced directors know the difference between compliance and effectiveness. Legislation, regulation, listing standards and proxy advisory services demand compliance with checklists of requirements focused mainly on people (e.g., director independence) and structure (e.g., committees). But it is board process --the work directors do and how they go about it--that matters most in achieving effectiveness. Two Stanford governance experts concluded a recent paper that demolishes much conventional "good governance" wisdom by asking why more attention is not paid to board process: "The board of directors is often described--and criticized --in terms of its salient structural features, such as independence and the composition of its members. However, the empirical evidence suggests that many of these features have uncertain or negligible impact on governance quality. Why isn't more attention paid to the process by which the board fulfills its obligations to its shareholders rather than its structure?" (David Larcker and Bryan Tayan, Seven Myths of Boards of Directors, Rock Center for Corporate Governance, 2015).

There are important steps that corporate directors can take to improve board process in order to drive better company results.

What the boardroom needs to be

Certain aspects of good process are straightforward. Agendas must ensure that vital business gets done. Management must meet the directors' information needs without burying them in detail. Boards need to act with a sense of urgency while deliberating important matters carefully. Directors must show up prepared.

But good board process runs deeper. For directors to be effective, the boardroom must be a place of rational analysis, quality discourse, careful consideration and wise judgment. Behavioral research has demonstrated conclusively that we all have preconceptions and preferences that affect perceptions, create biases, and influence judgments in ways of which we are largely unaware. In addition, the organizational context in which senior people operate can distort information on which we rely, amplify our biases in decision making, and lead to important omissions in complex business analysis.

Mindful of these realities, we offer seven recommendations that proactive directors can initiate to improve board process and produce better results.

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