Comparisons: McKinsey Global Survey on Improving Board Governance

By Virgil Carter

Every organization, whether for-profit or non-profit, strives to achieve an effective governing board.  McKinsey & Company, a recognized leader in organizational management in the for-profit corporate sector, often provides research useful for profit oriented and non-profit organizations alike.  In a recent 2012 survey, “Improving Board Governance:  McKinsey Global Survey Results”, McKinsey has some interesting findings which may be useful benchmarks for non-profit CEOs and volunteer leaders.

Survey contributors Chinta Bhagat, Martin Hirt and Conor Kehoe write, “Board directors today are more confident in their knowledge of the companies they serve and more strategic in their approach than they were in 2011. We asked respondents to focus on the single board with which they are most familiar. Overall, 166 respondents represent publicly owned businesses, and 606 represent privately owned firms; they represent the full range of regions, industries, and company sizes.

Focusing on Strategy

“Over 90 percent of respondents also say their boards have become more effective over the past five years, most often attributing that improvement to better collaboration with senior executives and more active or skilled independent directors”, according to the survey.
Two reasons may explain why boards are most effective at strategy: board members say they spend more time on it than other areas and that they have increased the amount of overall working time they devote to strategy, answering the call to action expressed by respondents to previous surveys. “In our 2008 survey, respondents reported that 24 percent of board time was spent on strategy—and a clear majority said they would increase the time spent.”  Now, directors say their boards spend 28 percent of their time on strategy, and only 52 percent say they would increase it (compared with 70 percent of respondents who said so in 2011). Meanwhile, the share of time spent on execution, investments, and M&A has shrunk, which is likely related to the fact that overall M&A activity has declined since 2007.

Room for Improvement

While respondents say their boards are taking more responsibility for strategy, risk management is still a weak spot—perhaps because boards (and companies) are increasingly complacent about risks, as we move further out from the 2008 financial crisis. This is the one issue where the share of directors reporting sufficient knowledge has not increased: 29 percent now say their boards have limited or no understanding of the risks their companies face. What’s more, they say their boards spend just 12 percent of their time on risk management, an even smaller share of time than two years ago.
Despite the progress they report, directors identify the same factors that would most likely improve board performance as respondents did in the previous survey: a better mix of skills or backgrounds, more time spent on company matters, and better people dynamics to enable constructive discussions. With respect to time, directors say they devote roughly the same number of days to board work as in 2011, and they still want more time. Across regions, directors at North American companies work an average of 22 days on company matters—notably less time than the 29 days and 34 days, respectively, reported by directors at European and Asian companies.

Looking ahead

• Increase attention to risks. According to respondents, most boards need to devote more attention to risk than they currently do. One way to get started is by embedding structured risk discussions into management processes throughout the organization.
• Make time. As in 2011, most directors say they want to spend more time on board work, and the results suggest real benefits from doing so: directors at higher-impact boards spend many more days per year on their work than everyone else, which likely helps them stay more relevant to and engaged with important company matters.
• Learn from peers. Directors at boards with less impact have much to learn from the actions taken by higher-impact boards, and not only when it comes to strategy. Using robust financial metrics, conducting postmortems of major projects, and using systematic processes to create competitive advantage through M&A—which the high-impact boards do more often—could all help boards become better.

How would you compare your non-profit governing board to these results?  Do you periodically survey your board for bench-marking and opportunities for governance improvement?  For a full copy of the survey findings, go to http://www.mckinsey.com/Insights/Strategy/Improving_board_governance_McKinsey_Global_Survey_results?cid=other-eml-alt-mip-mck-oth-1308