What you should consider when evaluating directors’ effectiveness
Having a high-functioning board of directors is essential at any time. It is especially vital in navigating times of economic uncertainty in which many small businesses, families and other credit union customers are coping with financial instability.
Yet, board dynamics can be complex simply because people are complex. Just one problematic board member can significantly disrupt the whole group, adversely affect a board’s productivity and decision-making efforts, and ultimately cost the organization time and money.
What Is Meant by a ‘Bad’ Board Member?
The factors that define “bad board members” vary. They may frequently miss board or committee meetings or show up completely unprepared. They may be antagonistic toward staff, disrupt meetings with a toxic attitude or lack sufficient financial literacy to contribute to informed business decisions. More subtle signs might involve board members getting burned out over time, becoming distracted by personal issues or being generally unengaged in board activities.
A recent survey report by PricewaterhouseCoopers found that nearly nine in 10 (89%) executives say one or more board members at their organizations should be replaced. Just 29% of executives rate their directors’ overall performance as excellent or good.
Identifying problematic board members can be tricky. The majority of board members are well-meaning and dedicated individuals who take their responsibilities to the organizations and communities they serve very seriously. There can be a fine line between what characteristics are considered good versus bad when it comes to evaluating board members. Having as much objectivity as possible is important for ensuring that a board member’s characteristics and contributions are fairly evaluated.
Key Considerations in Assessing Board Members
Many boards consider basic tenets of good governance in trying to determine whether board members are failing to perform their board duties. They may ask such questions such:
- Do they regularly attend board meetings?
- Do they bring financial literacy skills or offer a new perspective based on deep expertise or experience?
- Do they support the organization through equity involvement?
The answers to these questions may provide some insights to board member behaviors, but they offer a limited view in trying to evaluate questionable board members. After all, boards thrive when they include a variety of individuals with different experiences and perspectives. In assessing problematic board members, credit union leaders must seek a more complete picture. They should consider the individual’s motivations, past and present contributions to the board and whether there may be personality conflicts involved.
After all, labeling a board member as troublesome is a serious allegation that can have lasting implications for both the individuals involved and the organization. It is important to get it right. This requires digging further to assess how members work together as a group. Some questions to consider are:
- Is the board member intending just to cause conflict or is he/she an engaged dissenter seeking to make a positive contribution to the board?
- What are the motives of board members who develop back channels to internal managers? Are they trying to undermine executive leadership or are they earnestly seeking further insights from the people affected by their decisions?
- Are board members who network with other board members seeking to develop disruptive political factions or are they seeking to build consensus?
Delving into such complex questions requires diligence. Thankfully, there are numerous tools available to help, such as polling, full-board evaluations and peer reviews.
Factors and Tools for Evaluating Board Member Effectiveness
Modern tools and processes make it easier to quantitatively measure and assess board members’ performance. For example:
Attendance. Attending board meetings is a fundamental responsibility for board members. If a board member seems to miss more meetings than his or her colleagues, credit union and board leaders should analyze attendance over the past 12 to 24 months to get a clear, quantitative picture of whether the individual truly is shirking this most basic of obligations.
Engagement. While somewhat more complicated to assess than attendance, evaluating engagement is important in identifying board members who are not active board contributors. Reviewing meeting minutes can show which board members actively participate in board discussions. It’s important to remember that board members may have different preferred means of communication. Some board members may be more vocal in meetings, while others may prefer to contribute written remarks.
Preparation. Assuming all board members receive board materials well in advance of meetings, another red flag to look for is whether a specific board member or members routinely seem unprepared for meetings. If they take ample time to review materials, board members will know what to expect and should be engaged in board discussions. Unprepared board members do a disservice to the board and to themselves by wasting valuable meeting time getting up to speed. Some board management software solutions offer insights to board meeting preparation, including data on board book consumption and annotations. While this data may be anonymized, it can serve as an indicator that some board members spend less time on preparation than others.
Skills assessments. Maintaining a well-rounded board is an ongoing challenge as organizations’ needs change over time. It requires a careful balance of board member skills and experience. While organizations ideally want a diverse board that will bring a variety of perspectives to the table, they also want competent board members able to understand the implications of their decisions. A board-wide skills tracker can help identify board members’ skills, backgrounds, and experience. It can help pinpoint individuals who lack the necessary skills—such as financial literacy—to effectively serve on a credit union board.
Board performance reviews. The governance committee can perform a full-board evaluation, including board member self-assessments and peer reviews. To ensure a more objective review of individual board member performance, board leaders should consider hiring an independent third-party consultant to conduct a performance review.
Board surveys. Asking board members to participate in an anonymous assessment or survey also can provide insights to behind-the-scenes board dynamics. Such surveys may help evaluate the performance of the overall board and individual directors to reveal if any factions are forming, and whether board members trust information provided by executive leaders and management.
Roles and terms management. Keeping on top of board succession planning can help prevent board member burnout that can contribute to bad behavior. Modern board management solutions include dedicated functions that provide real-time insights to track board members’ experiences, backgrounds and term limits to help ensure boards have an optimal composition of engaged individuals.
Other Signs of Dysfunctional Boards
For boards to be effective, board members should feel comfortable and even encouraged to ask questions and express their opinions. While no board is perfect and every board experiences its own challenges, board members should operate in an environment that fosters open dialogue, productive discussions and respect for others’ viewpoints.
Unfortunately, one bad actor can offset the balance and create a toxic environment that shuts down open discourse. Some signs of a dysfunctional board environment include:
Poor behavior and negative attitudes. Signs of disrespect among board members, such as sharp criticisms or demeaning comments made during a board meeting, can lead to a toxic environment. If the behaviors persist, good board members may stop attending meetings or opt to step down from their posts.
Distrust between board members and management. Having a tense and adversarial relationship between the board and credit union leadership can inhibit the board’s effectiveness and negatively impact the overall organization. Another sign of bad board behavior is when there is clear distrust between the board and CEO. The CEO may fail to provide full transparency or try to keep the board from interfering in day-to-day operations. As a result, some board members may try to circumvent the CEO and reach out to others within the institution for further insights.
Outside influences also factor in when it comes to bad board members. The COVID-19 pandemic, for example, forced many boards to switch abruptly from in-person to virtual meetings. Such a change can completely alter the dynamics for building a cohesive team.
OnBoard’s 2021 Board Effectiveness Survey examined board effectiveness with input from 300 board administrators, executives and directors in six countries and an array of industries. The survey found:
- Nearly a quarter of respondents said their board’s collaboration deteriorated during the pandemic due to the rapid switch to remote.
- Nearly half (46%) said governance had become “challenging” since the pandemic began.
- 12% of boards that don’t use board management software said their board members weren’t prepared for meetings, compared to 6% for those who use board management software.
In the event a board member is identified as problematic through objective evaluation, credit union and board leaders shouldn’t simply ignore the bad behavior. Taking swift and decisive action is vital. It’s better to address the issue head-on with individual board members rather than developing workarounds or impugning the entire board for one person’s mistakes. Gather the evidence, confront the board member with the facts and then work to help them make necessary changes.
Paroon Chadha co-founded Passageways in 2003 and continues to lead its business strategy as CEO. He serves on boards at Passageways, Big Brother Big Sister of Greater Lafayette, Indiana University Simon Cancer Center and TechPoint. He is also an angel investor in several technology companies. Are you feeling overwhelmed by all the possible cybersecurity considerations? Board management software can offer cybersecurity protections in one simple, secure, turnkey solution. Not sure what you need to look for in a board portal or where to start? This board management software buyer’s guide should help!