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What Makes for a High-Performing Board of Directors?

New McKinsey research suggests that “the distinction between higher and lower impact turns on the breadth of the issues directors tackle and on the time dedicated to them. We drilled down to detailed board practices across the functions to which directors devote much of their attention: strategy, compliance, and M&A, as well as performance, risk, and talent management. It appears that boards progress through a hierarchy of practices that’s analogous to Maslow’s hierarchy of needs. Directors who report having a low to moderate impact said that their boards undertake ‘the basics’ of ensuring compliance, reviewing financial reports, and assessing portfolio diversification, depending on the function. Directors reporting that their boards have a higher impact undertake these activities, as well, but add a series of other practices in every function.”

“In the area of strategy, for example, this means becoming more forward looking. Boards with a moderate impact incorporate trends and respond to changing conditions. More involved boards analyze what drives value, debate alternative strategies, and evaluate the allocation of resources. At the highest level, boards look inward and aspire to more “meta” practices—deliberating about their own processes, for example—to remove biases from decisions.”

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Harvard Business Review: “If there’s one overriding theme, it’s that boosting effectiveness isn’t just about spending more time; it’s also about changing the nature of the engagement between directors and the executive teams they work with.”

“Ultimately, there are no shortcuts to building and maintaining well-tuned board and executive mechanics. Each of the measures requires hard work from the board members, and sometimes a CEO with thick skin. But a good director will provide the extra effort, and an effective CEO will make the most of an engaged board’s limited time.”