The Five Elements of Board Engagement (FEBE)

Panthea advises private and public sector Chairmen on their board’s performance. We base our advice on an analysis of board engagement. We measure engagement because we believe this is what drives effectiveness. Indeed, board reviews that focus on effectiveness do not appear to have enhanced board performance. Take the example of a board frequently reviewed; the former Dean of Stanford Business School headed its audit committee; among the non-executives were a former UK government minister, two CEOs of large US corporations and a female Professor of Economics from Asia; it had a clear code of ethics and received numerous accolades for good governance. One might expect this board to be effective. But the company was Enron and this board was ineffective. It was ineffective because it was not engaged.

Our analysis of academic research, of 30 Chairman interviews, of studies on plc and private equity owned boards, and of UK board composition all highlight the importance of engagement to board performance. Warren Buffett puts it well: “over…40 years, I have been on 19 … boards and ... interacted with perhaps 250 directors. The great majority … their contribution …was minimal at best and, too often, negative. [They]…simply did not know enough about the business and/or care enough about shareholders to question foolish acquisitions or egregious compensation. My own behaviour...frequently fell short as well. Too often I was silent when management made proposals…counter to the interests of shareholders. Collegiality trumped independence.”

To assess a board’s engagement we analyse five elements of board engagement (FEBE). We start by assessing the board’s focus: is there a clear vision and strategy and are they shared and understood by each board member? They may have their own view on the priorities within the strategy, but they must be aligned on the issues at hand. We then look at the perspective that the board brings: does the board collectively have the right skills, knowledge and experience to challenge, drive and support the executive? We look at the board’s infrastructure: are the right issues tabled; is information shared in time; is the division of responsibility and authority between board and executive clear, and are the right sub-committees in place? The behaviour of the board is the fourth element: is the board chaired effectively? Do all members contribute and does the board actually question, challenge, guide and direct business performance? Finally, we evaluate whether all the dots join up, and ask whether the board is fit: the right scale, shape and size in view of the ownership structure, organisation complexity and commercial context.

As output, we provide the Chair with a benchmarked and carefully analysed view on the board’s engagement and how to improve it. We monitor the progress the board makes in changing its engagement and enhancing its performance. We give the board tools to self-evaluate their progress, and we provide the Chair and the board with annual progress reviews.