Board Review for SMEs

Regular Board reviews are now relatively commonplace in large Private Sector corporations and indeed they are a growing feature of Public Sector corporations and utilities as well. Their appearance in small to medium enterprises  (SMEs) is less common, although in some respects the fundamental reason for Board Reviews in their context is even more relevant.

Why should corporate Boards review their performance?

The underlying motivation for reviewing the performance of a company’s Board at least every couple of years, but preferably annually, is to allow the Board members to assess how well they are focusing, both as individuals and as a group, on the key success factors for their business.

These key success factors tend to be summarised as:Boardmeeting

  • Good Governance practice;
  • Business strategy; and
  • Operational performance

Why review Good Governance practice?

In assessing their performance in Governance mode, Boards need to consider how well they have applied themselves to maintaining a decision framework that exemplifies integrity, care for stakeholders’ interests and  management of risk. These are often areas where Boards  can benefit from external assistance to ensure a truly independent evaluation. They are also areas where members may be reluctant to be examined, but they are also the areas where businesses most often need to improve.

For SMEs it is an area in which many struggle to see the relevance for them – especially in Family based businesses – but the fundamental principles are the same for large or small entities.

Why review the Board’s role in Business strategy?

Without strategic orientation the Board’s direction of the business is likely to merely limp along, being pushed and pulled by the unpredictability of the market. Providing good strategic direction does not come naturally to all Board members and it is most regularly seen as a product of the interaction of the various skills and talents of individual members on the Board. Equally, good strategic development requires a certain amount of disciplined thinking with a good sprinkling of creativity and these attributes can sometimes be in need of a bit of encouragement.

Getting stuck in the rut of doing the same old thing from year to year and wondering why the Business just doesn’t seem to grow is a perennial trap for SMEs.

Why review the Board’s role in Operational Performance?

Most Boards have a good focus on the day to day running of the business, at least in terms of a generally acceptable level of performance and profitability. A regular review of even this aspect of Board responsibility however is worthwhile to determine if any “blindspots” have developed in the Board’s performance monitoring style. In many cases just validating the real measures used to gauge effective business performance can bring to light “false indicators” that may be misleading the Board into a misplaced sense of optimism about the Business results and projections.

The importance and value of independent review of Board performance.

Whilst regular internal or self-assessment based reviews of Board performance are useful and develop awareness of Board members as to their ongoing responsibilities, the occasional fresh eyes approach is a valuable option. Independent external review facilitation provides an unbiased and disciplined approach to the review process.

CasualinterviewIn particular, it also moderates the influence of dominant members of the Board which sometimes is unduly evident in self-assessment based reviews. By providing an independent framework for the review the external facilitator actually enables individual members to feel more empowered to express their views in a confidential environment and to discuss their own strengths and weaknesses in an environment where they are not judged but encouraged.

 The emphasis is on “regular” review is aimed at fostering, not criticism, but continuous improvement.

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