This isn’t a new question; it’s been asked by every civilisation, from the Greeks on holding people in power to account, and the Romans on marital fidelity, to the present day. More recently it was brought up to date by Professor Bob Garratt in his book, “Stop the Rot: Reframing Governance for Directors and Politicians”. It’s critical to monitor, assess, and adjust senior leadership, including Board members and non-execs, to ensure the best future for the Company.
At the BIA UK CEO and Investor Forum this May, we led a roundtable discussion on succession planning and maximising the value of your business through talent management. In particular, the question of proactively monitoring and measuring Board performance provoked a lively and fascinating discussion.
When you dig a little deeper though, as the debate in the room revealed, Board evaluation is all too frequently done on a reactive basis revealing a weakness in approach that most life science companies share. At our panel discussion, a leading investment banker and a VC agreed that if there’s a problem with the Board they fix it only when problems arise – that’s standard practice.
Let’s start with thinking about the purpose of the Board and the nature of a Company – somewhat existential, but bear with me. Quite simply, the Board exists, primarily, to look after the interests of the Company. Crucially, it’s important to think of the Company as an individual, rather than an organisation. This is a concept (supported in law) that helps to focus the mind and recognises that a Company has a single set of interests. Compare this to the other stakeholders who the Board also represents. Investors for example, the interests of whom may not always be the same as each other or even as the interests of the Company itself. In Sweden, this kind of thinking is front and centre of every Director’s mind, where before Board meetings, the Directors’ charter is read out, reminding all members of their purpose and obligations.
In recognising the Board’s obligations to the Company, it becomes more straightforward to evaluate the performance of the members of the Board. Now, Boards are very good at evaluating the performance of executives but they are less good at reflecting on their own performance, and indeed seem to have little incentive to turn the mirror on themselves. Much better then would be for the Company and its investors to have a formal process to evaluate the performance of individual Board members at regular intervals, for example every 3 years on a public company Board. From a strategic view point, this would also enable succession planning to be aligned with the changing needs of the Company. We all know, for example, that a biotech company founder is often not the right person to be CEO five years later, and similarly, this kind of thinking must apply to non-execs too.
CEOs and other executives are measured by direct markers, but its more difficult for non-execs to be assessed in the same way, especially as Board meetings can be infrequent and interactions with individual Board members relatively short. Clearly, it will be important to put the right measures of success in place but there are options to consider, including share price in the case of public company Boards and exit values for private companies. All of the execs and Chairs at the meeting were supportive of this and thought it important to take the discussion forward.
There was complete agreement in the room that reviewing Boards, asking if the Board is right for the time and fit for purpose, or whether its time to change, are vital questions. There was also a lot of interest in different rules comparing UK – Europe – USA as well and generally in how Boards differ internationally.
This felt like the beginning of an important discussion and we’ll be working with the BIA to take the debate forward.