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How to achieve enduring board effectiveness


We provide a framework to help boards achieve effective governance that positions their companies for strategic success and drives long‑term value.


In brief

  • The right framework can help boards effectively fulfill their oversight role, position their companies for strategic success and drive long‑term value.
  • A strong mission and clear engagement model along with effective information practices are foundational pillars for board effectiveness.
  • Boards that strive for effective composition, operations, dynamics, decision-making, and evaluations can achieve effective governance.

In a world of constant change, a company’s board plays an important role in helping move it forward amid rising complexity, innovation and periodic crises while remaining true to its purpose and values.

Knowing that the business, operating environments and stakeholder priorities will continually change in subtle or seismic ways, boards must help steer companies in the right direction. Boards can execute this critical responsibility by adopting proven approaches to drive, measure and achieve their own effectiveness to better oversee their companies’ strategic success and drive long-term value.

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The EY Center for Board Matters has developed a comprehensive approach and framework for understanding and enhancing board effectiveness. The framework includes a series of elements that must be intact for board performance to flourish. Two of these are foundational “effectiveness” pillars that guide the work to be done by the board. These flow through five “systemic” layering elements that embody the board’s operating environment. With a strong mission and engagement model supported by effective information practices, boards have a solid foundation for effective performance. The systemic board governance elements encompass the operating model and principles of an effective board.

Click on the framework elements to discover evidence of board effectiveness.

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Chapter 1

Board effectiveness pillars

Two foundational pillars guide the work to be done by the board.

Board mission and engagement model

 

The board’s fundamental mandate is to provide insight, foresight and oversight on mission-critical issues that drive the company’s governance as it advances its strategy, operations, financial performance, and stakeholder engagement to drive long-term corporate value. Guiding this mission are the board’s own values.

 

Effective board members honor core traditional leadership values and skills, such as strong ethics and integrity; diligence and conscientiousness; an executive-level ability to communicate with, inspire and empower others; and a commitment to progress. Besides these qualities, effective board members have curiosity and a continual learning mindset, a forward-looking entrepreneurial energy and clear mission to provide oversight, insight and foresight on mission-critical issues.

 

In today’s business context, such mission-critical issues are expanding the traditional purview of the board and demanding oversight of complex, fast-evolving external risks and opportunities like those related to climate change, cybersecurity, and shifts in the political and social landscape. Companies, and increasingly their boards, are being called to weigh in on policies and positions related to the company’s values that may challenge its relationships with stakeholders. The board plays a significant role in overseeing that the company’s strategy, operations and policies are aligned with the company’s stated purpose and values.

 

Effective board directors must do the work to be as well prepared as possible, stay abreast of governance issues, and look to continually improve their performance. Of course, boards cannot do these things without efficient and effective engagement with each other, management, advisors and key stakeholders. Key engagement goals include communicating with, inspiring and empowering others as well as providing effective guidance to management.

 

This board effectiveness pillar is also anchored by the idea that boards can achieve higher levels of effectiveness when they develop a shared mission, engagement model and vision for excellence that they document in the company’s corporate governance guidelines.

 

Writing down and communicating these standards provides a clear North Star that guides boards in progressing the company’s purpose, strategy, performance and long-term value, regardless of circumstances. The engagement model documentation should also describe the board’s engagement model around policy and include details about when the board will weigh in, when it will vote on various topics, which policy-setting elements require board insight, and when it must be consulted before management can act. This clarifying model is critical to a high-functioning board and forms the foundation of the work to be done.

Evidence of an effective board mission and engagement model

  • The board’s corporate governance guidelines articulate the board’s purpose, values and core engagement strategy and practices.
  • Every board member can consistently state the board’s mission and the company’s purpose, strategy and long-term value proposition.
  • Board members and management are in clear agreement about the mission-critical company issues that demand board oversight. 
  • Each board member individually embodies core traditional leadership values and skills, including ethics and integrity, diligence and conscientiousness, executive-level communication skills and a commitment to progress.
  • There is clarity as to the company’s core policies and when and how the board engages to oversee them.

Information infrastructure

Effective boards are rooted in the diligent design and maintenance of reliable and efficient information practices that provide timely access to the highest-quality information and people (e.g., advisors, stakeholders, customers) needed to identify, illuminate and address evolving mission-critical issues.

Boards should be specific with management about their information needs so that management is not overburdened with immaterial questions and potentially driven to expand board materials to include tangential information or excessive detail.

An effective board information infrastructure delivers in a timely way board meeting materials that are complete, accurate, clear, and concise. Tailored benchmarking can provide insight to boards on how their company compares with others, including the operational gaps and resource allocation needed to improve. Current and forward-looking information about complex and emerging issues should be presented in understandable forms, including graphics where appropriate and helpful.

Boards should regularly ask, “What information can we get – from whom and in what form – that will help us more clearly identify, understand, analyze and act on mission-critical issues?” They should not randomly reach out to management for information but look to the company’s corporate secretary to help manage information requests in a way that is mutually effective for boards and management.

It can help to develop a board reporting and notice matrix that lists the matters that require board oversight (mission-critical issues) and those that do not (management matters). It’s also important to address how matters in the gray area should be handled. For example, in what circumstances does management need to notify the board, and should that happen promptly or at the next meeting? This kind of matrix can provide the backbone of an effective information infrastructure and a foundation for a rational board decision-making matrix (see below).

Boards should never rely solely on management for their education and information. Broader and more strategic engagement, both inside and outside the company, is necessary for boards to obtain the information they need. Boards should ask for reporting on customer, supplier and other key stakeholder behaviors, trends and related economic headwinds and opportunities. Board members should also get into the field to see firsthand how the business operates and bring direct insights back to the boardroom for discussion.

Consultation with independent advisors is increasingly important on emerging and complex issues. Also, it has long been understood that board members, with their rich and diverse backgrounds, are expected to provide their perspectives, stay informed and bring insight and information to the board and the company.

Evidence of effective board information infrastructure

  • Board meeting materials include a cover memorandum that succinctly describes in a clear narrative form all items on the board agenda.
  • Technical documents, such as financial reporting, equity compensation plans, merger agreements or other material contracts, are fronted with a one- or two-page (max) executive summary of material terms.
  • All board materials are presented with draft resolutions clearly specifying the matters the board or its committees are being asked to act on.
  • Boards and management are diligent about how they engage with each other to share information, respecting established communications channels and security issues. 
  • Neither the board nor management feels unduly overburdened with information overload or requests for information, respectively.
  • The board regularly hears perspectives from third parties on critical issues and complex matters.

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Chapter 2

Systemic board governance elements

These elements encompass the operating model and principles of an effective board.

With a strong mission and engagement model supported by effective information practices, boards have a solid foundation for effective performance. The following systemic board governance elements encompass the operating model and principles of an effective board.


Questions for the board to consider

  • In overseeing management’s performance, how does the board evaluate whether management is “living” the company’s purpose and values as described in the company’s code of business conduct and ethics? 
  • How does the board engage with management in rigorous ongoing analyses of material and mission-critical growth drivers, risks and opportunities relevant to the company’s strategy, operations, performance and long-term value? 
  • How can board materials improve with more sophisticated and broader use of succinct narrative stories that explain the matters being presented to the board as well as decision-useful dashboards, graphics, data, key performance indicators (KPIs) and benchmarking?  
  • On mission-critical issues, how does the board diversify its information sources beyond management by engaging with independent advisors to help it assess the quality of management reporting and broaden its perspective? 
  • Do the board’s corporate governance guidelines provide clear standards for director qualifications, continued service, tenure, and removal? 
  • Has the board discussed using additional committees to address expanding board or committee roles and oversight responsibilities, particularly around risk, technology, cybersecurity, climate change, human capital management, and material ESG matters? 
  • Does the board calendar make sufficient time for board engagement with management, key investors and other stakeholders, and independent advisors?  
  • Is every director consistently prepared for board and committee meetings, as demonstrated by his or her engagement and contribution? And if not, how is that feedback provided? 
  • How does the board effectively leverage the support of a well-qualified, trusted corporate secretary (or other member of management performing that role) to act as liaison between the board, its committees and senior management and to help design and maintain effective board calendars, agendas and meeting materials?  
  • Is the board effectively managing and leveraging diversity in backgrounds and perspectives? Is there sufficient diversity in views to promote progress in the board’s mission while, at the same, time discussions stay on track and issues are not overcomplicated? 
  • Does the board regularly review its framework for effectiveness so as not to have false security in its current mission, engagement model, information infrastructure, composition, operations, and business or board “norms”? 

Summary

An effective board of directors is key to a company’s success. Using our framework, boards can evaluate and better understand the foundational pillars and apply the five key systemic governance elements to achieve enduring and effective board governance.



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