Effectiveness of Boards

. It has been suggested by John Fast (2008) that the effectiveness of the Board can be measured by the way the senior executives perform and the legacy they leave. With the declining length of term of senior executives (5 years) and/or bringing them from outside the organisation, their full impact may not be felt until long after they have left. Furthermore, the attitude of the senior executive to his/her Board will have an impact on things, like

- the flow of information between management and the directors so that the directors have the relevant information for good decision-making,

- the delegation of responsibilities from the Board to senior executives

The 2003 Higgs Review (Ann Hyland, 2015c) stated that a major part the board's role is to focus on strategy, rather than simply approving proposals that should be decided by management. The 2009 Walker Review on corporate governance in British banks and other financial institutions went even further by advocating the devil's advocate role of the board in the form of stress-testing management proposals. In its view, the board occupied a critical role in challenging strategic proposals put forward by senior management. Early challenges by the board on questionable strategies can avoid much shareholder pain later.
If the strategy is not working then there is a need to address the situation by changing senior management and/or the Board; as the latter endorsed the strategy, they are as accountable as senior management.

The length of time a person should be a member of the board and/or senior manager is debatable. Generally it is felt that a decade is a good time to be a member of the board and/or senior manager. Also, 3 years is generally enough time for a board to determine whether a CEO's strategy is working. On the other hand, tenure should be based on performance; one key indicator of performance for listed companies is the stock price. If it is low, there is considerable pressure to change.

Recent USA research (James D Westphal et al, 2007) shows that white males are favoured in board appointments when compared with women and ethnic minorities

 

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