Maintaining Trust Is Critical to Board Effectiveness
Article

Maintaining Trust Is Critical to Board Effectiveness

by John Stewart
July 21, 2021

Trust is the first and most important of the various factors that can diminish an effective working relationship between an organization’s management and its board members.

While the board and management share oversight over the business operations, culture, and performance, potential deficiencies in any of those areas can usually be traced to ineffective communication and, ultimately, a lack of trust.

Trust is a fundamental building block that underlies everything board members do as they interact with management and each other. Trust is essential, for instance, to effective strategy discussions and reviews of the organization’s performance. And board members and management need to have frequent and candid communications at an agreed-upon cadence to maintain alignment with the organization’s strategy and operating results.

Building and maintaining trust is so important, in fact, that if board members and company management don’t trust each other, the organization likely won’t succeed. 

Common Indicators

One of the most common issues hindering effective board and management cooperation is a personality conflict between two or more people in the meeting room. This type of disagreement can influence board members’ or management’s perception of an issue, and can preclude effective conversation and collaboration to address emerging problems. Even two members who tend to disagree can affect the performance of the board as a whole.

Personality conflicts are particularly insidious because most people in the meeting room are aware of the issue, but are reluctant to bring it up for discussion. As a result, potential issues fester longer than they should, and the board avoids sensitive but important conversations. 

Instead, it’s more effective to acknowledge the issue, and to help the board members understand the importance of setting personal differences aside to focus on the organization’s strategy, goals and culture. Board members can (and sometimes should) disagree, but they need to avoid taking those disagreements personally or attacking each other. 

Another common issue with many boards is members focusing exclusively on their individual areas of expertise. This can result in a siloed view of the organization’s priorities and performance, and can influence competition for organizational resources negatively.

Board members should understand what’s happening in every function, using an agreed-upon set of metrics. For example, while the executives and board members who focus on HR will monitor the organization’s retention rate, the whole board should be aware of that metric and how it is trending because a negative shift in retention could indicate other emerging  problems.

Once the board and management are comfortable that trust has been established, they can turn their attention to discussing the organization’s purpose, vision and operating goals. These need to be aligned and monitored, which in turn requires trust-based candid discussions. Too many organizations jump directly to working on the company’s strategy without ensuring effective trust among the board and management. 

Creating a Board

As a growing company recognizes the need to form a board, an important early step in the process is taking time for the new board members to get together and align how they plan to operate and communicate. 

Through candid conversations and exercises, the board members can establish ground rules such as how often they’ll communicate with management and meet in person. As they get to know each other, they can also discuss their interests and strengths so they are able to build relationships. 

After learning about each other, the next step in creating an effective board is agreeing on the organization’s strategic goals, as well as the metrics they will use to monitor performance. This will be a blend of short-term and long-term goals that reflect the organization’s strategy and purpose. While some metrics such as revenue and profit will be obvious, there can be a variety of non-GAAP metrics that provide insight into the company’s performance. 

Manage Change

Board members also have to understand they are, in effect, change agents because every strategic decision results in some form of change. In addition to setting strategy and identifying goals, the board has to establish plans for the company to achieve those goals, as well as to communicate the change in the expected results to employees, investors, and other stakeholders. This kind of transparency is critical not only in promoting the success of the change, but also in maintaining transparency and supporting the organization’s culture

And board members need to be aware that this is an ongoing effort that will require continuous monitoring, and potential adjustments as needed over time. As the board reviews performance, for example, it is equally important to acknowledge wins and to address shortcomings.

Growth Events

The type of in-depth review that happens when a board is created should also take place when the organization experiences a significant event, such as a funding round or a merger that will result in a change to the board’s composition. Adding one or two members to a board, for instance, changes the group’s operating dynamic and its essential to discuss the change as it is taking place.

Similarly, a public offering will introduce new legal responsibilities for board members. Some roles will be mandated, and the board will face additional scrutiny as the company reports its quarterly and annual results. 

These ongoing efforts play important roles in helping boards and managements work together to establish and monitor the organization’s goals, performance and culture.

Learn more about building an effective strategy for your board or management team with Armanino’s Strategy & Transformation team. Connect with us today.

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Author
John Stewart - Consulting| Armanino
Managing Director
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