Living in the era of system transformation is bound to test everyone’s mettle. A new world order in health care calls for a deeper examination of how we govern our organizations. While the overall higher mission of governance may not waiver, it stands to reason that the mix of members, activities and priorities will mutate. Board members already face unprecedented challenges, but the biggest challenge ahead for trustees may be their self-examination and the boards they sit on as effective instruments of governance in a new system and what that means in practical terms.
Looking to a broader view of governance in a changing world, McKinsey & Co., a global consulting firm, recently released a survey of 770 directors from public and private companies in many different industries to answer the question: What common traits characterize high-performing boards?
Certainly, corporate boards in the wake of the financial crisis took it on the chin as role models. Clearly, too big to fail also translated as too big to govern. Or, in some cases, didn’t try to govern. Neglectful, overly optimistic, ill-informed, self-interested and just plain lazy were some of the prevalent descriptors of corporate directors. And in health care, there is more chatter about corporate models. That being said, the McKinsey analysis poses interesting issues that travel well.
Directors who report having a low to moderate impact said they undertake “the basics” of ensuring compliance, reviewing financial reports and assessing portfolio diversification. High-impact boards do these tasks, but also add additional functions. For example, in the area of strategy, high-impact boards are more “forward looking.” Moderate-impact boards look at trends and respond to changing conditions. More involved boards go beyond and analyze what drives value, debate alternative strategies and evaluate the allocation of resources. At the highest level, boards examine their own processes to remove biases from decisions.
More involved boards perform regular performance discussions with the CEO, but those with higher levels of engagement analyze leading indicators and review nonfinancial metrics, such as talent management across the organization.
More engagement also means more time commitment. Directors reporting high-impact involvement worked for their boards about 40 days per year, while those who said their impact was low or moderate averaged only 19 days per year. High-impact boards spent most of that extra time focused on strategy followed by performance management, organizational health and risk management.
The specter of highly engaged boards is likely to make some CEOs somewhat anxious. The analysts conclude that such boards are not spending the extra time supplanting management’s role in developing strategic options, but are building a better understanding of their companies and industries and stress-testing those strategies.
In a separate article, McKinsey analysts proffer that the real drag on board effectiveness is “spending too much time looking in the rear-view mirror” and not enough on the proverbial road ahead.
Easier said than done, but our current notions of governance can’t remain unchanged if everything is changing around us.
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