Spencer Stuart has been advising the boards of Europe’s leading companies for several decades. As a result of our advisory work, board assessments and regular interactions with business leaders we have accumulated a significant body of knowledge about what makes an effective board.
In this third edition of Boardroom Best Practice our purpose is to share our knowledge by identifying common areas of best practice among European listed company boards. We offer here a set of practical recommendations that boards can apply regardless of the different cultural and legal frameworks in which they operate. Indeed, if we have learned one thing it is that board effectiveness is enhanced by applying these principles, whether the board is unitary, two-tier, predominantly executive or operating under the umbrella of a majority shareholder.
We seek to provide a framework through which best practice can be identified and tailored to a specific board’s needs. We also present behavioural and regulatory differences at a national level as a series of sidebars that accompany the text. Our aim is to help directors and board chairmen and women to understand how changing business requirements and thinking about governance affect board practice.
The nature of board debate and decision-making, as well as the management of stakeholders’ interests, is in flux. To keep abreast of developments we will periodically update this publication, building on our experience and sharing new lessons learned.
Few endeavours are more fulfilling than serving on a board. Directors operate at the interface of public and private morality and their accountability goes well beyond their duties to employees and shareholders. They are encouraged to elevate the long-term interests of all stakeholders above short-term considerations, even though as a consequence it can be difficult for a board to satisfy the needs of all who have an interest in the company’s success.
The level of engagement expected of directors is increasing and we believe this is a good thing. To be a successful director today should be an absorbing intellectual and practical challenge. We hope Boardroom Best Practice will help you rise to that challenge and add to your enjoyment of the role.
What good governance looks like
What constitutes good corporate governance and proper board behaviour is constantly changing. Governance changes once came about mainly in response to crises, but continuous improvement is now the watchword, mirroring developments in the societies that companies serve.
However, it is not the job of codes or regulations to provide a straitjacket that inhibits a board’s vision and stifles the entrepreneurial spirit of the business. Boards have considerable discretion and should always be judged on how they exercise it.
So, whilst there is no universally applicable definition of what makes for an effective and successful board, we would characterise the hallmarks of a successful board as follows:
- Clear definition and understanding of the role of the board and how it differs from that of the management team
- Wise and sensitive leadership that fosters productive and challenging debate
- Appropriate composition of directors, all of whom are aligned with the long-term strategic vision
- Active involvement of all directors
- Thorough understanding of how the company makes its money
- Confidence in the competence of the senior management team at all times
- Efficient decision-making processes
- Trusting and open working environment
- Clearly defined remits for committees and effective communication between each committee and the board
- Regular assessment of individual and collective performance
- Maturity of vision and shared understanding of the company, its culture and purpose
- Commitment to transparency and open communications with all stakeholders
- Commitment to honouring the recommendations of relevant governance codes
- Willingness to articulate and justify the role of the company in society.
Any board that exhibits all or a majority of these characteristics can be counted both a success and an enjoyable institution on which to serve.
What follows is an exploration of the conditions, practices and behaviours that foster the kind of success to which the best boards aspire.