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The Struggle for Effectiveness: Why Boards Often Fail to Deliver

The role of a board of directors is more critical than ever. Boards are responsible for steering companies toward long-term success. They set the tone from the top, ensure accountability, and provide strategic direction. A board’s influence can determine whether a company thrives or falters, making its role pivotal in today’s dynamic business environment. However, despite their importance, many boards struggle to work effectively.

The sheer volume and variety of issues that a modern-day board must deal with can overwhelm even the most experienced directors. Diversity is often seen as a strength, bringing varied perspectives to the boardroom. However, this diversity can also be a double-edged sword. While healthy debate is essential, too much discord can paralyse decision-making.

Another common problem is relying on inadequate information and preparation. Board members depend on the information provided by the company to make decisions. If this information is incomplete, outdated, or overly complex, it hinders their ability to provide effective oversight.

Carillion, a multinational facilities management and construction company, collapsed in January 2018 under a mountain of debt and unfinished projects. The board’s failure to grasp the company’s financial health and the risks it was taking led to its demise. The overbearing influence of management, coupled with the board’s inability to ask tough questions and its reliance on overly optimistic reports from management compromised the board’s ability to evaluate company performance and strategy independently—a lesson boards of companies large and small must heed.

One of the biggest challenges boards face is group-think. It’s the moment when everyone nods in agreement at a statement like, “It’s complicated,” and then moves on without probing further. This superficial consensus can lead to bad decisions. The role of the non-executive director (NED) involves trusting your gut and not worrying about looking or feeling foolish. When true trust exists, challenging questions are met with an understanding of good intent on all sides. NEDs aren’t there to solve problems directly; they’re there to ensure the work is done. It’s crucial to continue to prod and ask tough questions. If you’re not confident the work is being done, you must hold the line. When things go wrong, saying, “It’s complicated,” won’t suffice.

Saf Talking

One of the fundamental principles of board governance is collective responsibility. Every board member shares accountability for the board’s decisions and the company’s performance. The Chair is pivotal in creating the conditions for overall board and individual director effectiveness. They shape the culture in the boardroom and encourage all board members to engage actively in board and committee meetings. The Chair fosters relationships based on trust, mutual respect, and open communication between non-executive directors and the executive team.

The CEO’s relationship with the Chair is particularly crucial; a strong partnership can significantly enhance board effectiveness, while tension or misalignment can severely hinder it. Non-executive directors (NEDs) play a critical role in providing independent oversight and constructive challenge to the executive team. NEDs need to be fully engaged, well-prepared, and help mitigate the risk of groupthink.

The UK Corporate Governance Code 2024 emphasises the importance of board diversity, risk governance, and the role of ethics and corporate culture in achieving long-term success. As the Code evolves, it underscores the need for boards to be more transparent, accountable, and engaged with stakeholders. Future updates will likely focus on integrating environmental, social, and governance (ESG) criteria into corporate strategy, reflecting the growing importance of sustainability and ethical considerations in business. Additionally, technology’s rapid advancement will necessitate that boards stay ahead of digital trends, cyber risks, and the implications of artificial intelligence on governance practices. These trends are not just relevant in the UK but resonate globally, as companies worldwide face similar pressures and expectations.

The very notion of what an effective board looks like has shifted over the years. At a most basic level, board members consider themselves successful if they leave the company more prosperous and functional than they found it. Effective governance is not the exclusive domain of larger corporations. In fact, small and medium-sized organisations can benefit even more from robust governance structures, as they often lack the buffers that protect larger companies from shocks. The principles of transparency, accountability, and strategic oversight are crucial for survival and growth. As Warren Buffett said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

Today’s board members are custodians whose job is to strengthen the company’s foundation, upon which future board members will continue to grow and run the business. This means corporate board members must embrace humility rather than hubris, remaining vigilant and adaptable as they lead in an increasingly chaotic world. And remember, a board meeting without rigorous debate is like a bath without water: sure, you can sit in it, but what’s the point?

Safaraz Ali, Featured in the Business Influencer Magazine

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