The Idea in Brief

Who can blame your board for rushing to comply with new governance regulations? Nobody wants to be the next corporate-scandal poster-child. But if you focus solely on compliance, you’ll miss an opportunity to make your board the best it could be—a seat of challenge and inquiry that adds value without meddling and empowers its executive team without abdicating its own leadership responsibility.

High-performance boards—capable, coordinated, collegial teams focused on unambiguous goals—don’t just happen. They must be deliberately constructed. The best boards begin with rigorous self-assessments—going far beyond what’s required by the New York Stock Exchange. The board of Medtronic, for example, reinvented itself after sorting through quantitative and qualitative data collected in surveys, confidential interviews, and facilitated group discussions.

Armed with such knowledge, high-performance boards actively choose how engaged they will be in critical management decisions. They match the skills of each director with organizational needs and make sure that board meetings are venues of authentic debate, not scripted presentations. Treating self-assessment as a transformational exercise, as Bank of Montreal and Best Western have done, will ensure a cadre of talented and energized directors who will turn your organization into a high-performing competitor.

The Idea in Practice

To develop a high-performance board:

Select the Right Role

Figure out how engaged directors will be in influencing management’s decisions and your organization’s direction. Options range from passive boards (whose main job is to ratify management’s decisions) to operating boards (who make all the key decisions that management then implements). The right level of engagement will shift as circumstances vary. During a crisis, for instance, your organization may need a highly engaged board.

Assign the Right Tasks

New governance requirements ask boards to spell out their duties (e.g., setting compensation and evaluating the CEO) in written charters. Effective boards do more than that. Rate how engaged your board wants to be in each strategic business activity (such as strategy, operations, and financial management), as well as how engaged it really is. Look for gaps in ratings to see where the board should be spending its time and resources.

Cultivate the Right Membership

Conduct formal assessments, using peer reviews, of all your directors. The results will tell you which members need help, which should be nominated for another term, and which should be cut loose.

Manage the Right Agenda

Don’t let your agenda get overloaded with show-and-tell segments that crowd out serious questions, troublesome concerns, or authentic debate. Use your ratings of strategic tasks to determine how much time should be allotted to each one. Example: 

At the start of each year, the board at Target sets three top priorities (such as strategic direction, capital allocation, and succession planning), each of which is placed at the top of the agenda for at least one upcoming meeting. Directors require management to submit major items for board approval at least one meeting prior to the scheduled vote to allow time for discussion before voting.

Get the Right Information

Don’t rely solely on management to give you the data you need to make smart decisions. Design formal processes that deliver leading and lagging performance indicators, and then supplement your knowledge by collecting more information on your own. Directors at General Electric, for instance, are required to visit company facilities unaccompanied by senior executives.

In business, as in families, overly permissive parenting is often blamed for egregious misbehavior. Recent scandals have exposed some boards as too passive, too indulgent, or flat-out oblivious to what goes on around them. As a result, companies facing new governance requirements are scrambling to buttress financial reporting, overhaul board structures—whatever it takes to become compliant. If they stop there, though, compliant is all they’ll be. That would be a shame.

A version of this article appeared in the May 2004 issue of Harvard Business Review.