White paperKroese Board Quality Index ®

Board Culture is a ‘hard’ issueCompanies, acquisitions and investments generally don’t fail because of lousy products, bad intentions or insufficient plans. If they fail, they mostly do so, because of the way their leaders behave: the choices they make, the way they solve problems, the way in which they (fail to) cooperate.In short: because of the management board culture.

What is the quality of our management board culture?How good is their teamplay?Do they get things done?Do we comprehend their plans? Are they built upon facts or merely visions?Do they provide the organisation the right energy? Do they inspire the organisation to become better, to innovate, to grow?Are they acting in the company’s best interest? How deep is their involvement with the company’s success?How much of the company’s success can be attributed to their initiatives, creativity and efforts?How sustainable is the performance they report?Are they in agreement on strategy and operational priorities – or are their meetings a mere display of different perspectives without resolution?Do they create a context for sustainable success?How do they relate to our key customers? And to employees, shareholders and other stakeholders?

The perspective of the supervisory boardSupervisory boards need a dashboard which helps them answer the following questions:What constitutes a good management board culture, for our company in this sector?How can we use management board culture in the interest of the company we supervise?how can it be measured?how can it be managed?how can we report on it to the company’s stakeholders?

Do you combat the fever or the disease? Most key performance indicators – such as market share, recognition, image – are mere symptoms.The driver of these results is the organisation and the way it solves problems and dilemmas. In short: its culture.SustainableresultsLong-termdriversCulture is the driver of distinction.

Strong board cultures generate strong, distinctive, companiesStrong organisational cultures build strong brands. Strong brands are more profitable. corporate culture starts at the top of the organisation: board room culture is decisive for sustainable performance.However, for long ‘board culture’ has been perceived as something elusive for executives and non-executives alike. Why bother with the ‘soft’ side of business while we can focus on the ‘hard’ side: figures that tell us how we are doing?This attitude foregoes the fact that board culture is a long term driver of (short term) results.

Strong organisational cultures build strong brands. Strong brands are more profitable.

corporate culture starts at the top of the organisation: board room culture is decisive for sustainable performance.

However, for long ‘board culture’ has been perceived as something elusive for executives and non-executives alike. Why bother with the ‘soft’ side of business while we can focus on the ‘hard’ side: figures that tell us how we are doing?

This attitude foregoes the fact that board culture is a long term driver of (short term) results.

Strong board cultures generate strong, distinctive, companiesMoreover, it overlooks the fact that figures are results. Meaning: symptoms of achievements at a certain moment. It is important to know what your profit is, but it is more important to know what drives that profit in the long run: that knowledge provides supervisors the insight to intervene successfully!Corporate dramas may be years in the making: while profits are still rising, the executives may be setting the stage for sudden decline and breakdown. If supervisors are capable of managing boardroom culture, they are able to intervene at the right time.

Moreover, it overlooks the fact that figures are results. Meaning: symptoms of achievements at a certain moment. It is important to know what your profit is, but it is more important to know what drives that profit in the long run: that knowledge provides supervisors the insight to intervene successfully!

Corporate dramas may be years in the making: while profits are still rising, the executives may be setting the stage for sudden decline and breakdown. If supervisors are capable of managing boardroom culture, they are able to intervene at the right time.

Key cultural characteristicsCulture shows in the attitude of people and in the way they behave.

Key cultural characteristicsAttitude:sense of reality; do they face the facts?subservient to the company’s interest: is it company first or ego first?modesty: how do they cope with responsibility, especially in case of bad news?adherence to strategic priorities: are their plans coherent and consistent with their actions?inspiration: is there a sense of progress in the air?NB: list of characteristics depends on supervisory board choices, which may, e.g. be influenced by type of industry, strategic phase etc.

Key cultural characteristicsBehaviour:board dialogue: is there a search for consensus or are discussions dominated by one or a few?cooperation/teamplay: are they in it together?perseverance: do they have the ability to get it done?creativity: are they able to inflict necessary renewal of products, processes, people?NB: list of characteristics depends on supervisory board choices, which may, e.g. be influenced by type of industry, strategic phase etc.

Key cultural characteristicsThe key cultural characteristics may vary in time (life cycle), among organisations and sectors. They are part of a continuous (change) cycle which consists of four dimensions that determine the results of the company.ContextAttitudeBehaviourResults

Board culture is part of an action-result cycle.I. How does our context influence the mindset and attitude of people involved?CULTURALCONTEXTAN EXCELLENT BOARD?KEY CULTURAL CHARACTERISTICSPERCEPTION/ATTITUDERESULTSDistinctiveWHAT IS THE DIFFERENCE THE BOARD MAKES?BEHAVIOURIII. Behaviour generates results.II. Perception and attitude generate behaviour.

Insight in the cause-and-effect relationships within this cycle provides the supervisory board:fundamental knowledge of the quality of the management board;priorities for attention and/or improvement;input/starting point for, improved and factual, boardroom dialogue;concrete ideas on where and how to start.

Corporate missionleadershipvaluestasks & way of workingphysical environmentbalance of powercommunicationremunerationCONTEXT(re-)appointmentsDilemmas & problem solvingSense of realityCompany interest firstQuality of decision makingCommitment & involvementPERCEPTION/ATTITUDERESULTSDistinctiveFlow of ideasModestyDO NON-EXECUTIVES LIKE WHAT THEY GET??Number of successful ideasAdherence to Strategic prioritiesKPI’s/quantitative resultsBEHAVIOURInspirationCooperation/teamplayManagement boarddialoguePerseveranceCreativity

Kroese Board Quality Index (KBQI)FeaturesIt provides a valuable instrument for non-executives to measure, manage and report on a board’s culture.It delivers a key performance indicator, which depicts a management board’s performance in one figure. This figure is broken down to scores on the key parameters that make up total board quality.Each key parameter is also ranked on a maturity scalewhich depicts inherent quality of the score itself (e.g.: we score high on teamplay, but low on maturity because we meet often but do not search for consensus).Furthermore on key issues the extent to which people (dis)agreeis plotted. This provides insight in the common ground for improvement (are they on the same songsheet?).

Kroese Board Quality Index (KBQI)Delivery 1: knowledge and insightthe relationships between the governance context, board culture and the results the company getsa thorough and common understanding of:the quality of the company’s board culturethe way the board culture influences (long term) performanceinsight in maturity of board performance:are they busy being busy, or are they focused on the right things?insight in whether board is on the same songsheet:to what extent is there (dis)agreement on certain dimensions or topics?insight in board’s intentions/plans for the future on dimensions & topicscompared to score ‘X’ today what do you want it to be next year?

the quality of the company’s board culture

the way the board culture influences (long term) performance

are they busy being busy, or are they focused on the right things?

to what extent is there (dis)agreement on certain dimensions or topics?

compared to score ‘X’ today what do you want it to be next year?

Kroese Board Quality Index (KBQI)Delivery 2: how to toss the frisbee!agreement on priorities for improvement and most urgent issuesingredients for a sound improvement plan and agreement on the processcommitment on executive and non-executive levelideas for interventionsimplementation/change plan

KBQI: Kroese Board Quality IndexClient: Contact: Date: 16 Maart, 2009Consultant: Theo Kroese, Jan van de PollIllustrative figures. For demonstration purposes onlyWasteShortageWasteExamples of OutputActual Maturity LevelsThe 7 respondents from theSupervisory Board comparedon all 4 questionnairesMaturity LevelMethodology nominatedfor the ICT-prize of theEuropean CommunityMaturity LevelImprovementscenarioMoving ‘Attitude’to Maturity Level 3DendrogramSignificant disagreement Among Supervisory Board respondents re. improving on ‘Attitude’Division 1 > AttitudeScore Type: PlannedAssessment structureFour questionnaires divided in 22 dimensionsStacked HistogramShows how respondents plan to improve. Compare with top-down priorities to identify areas of waste or under-investmentManagement SummaryColumn- & Row totals plus KPIsKroese Board Quality IndexOne overall score4.3

How does it work?Define key cultural characteristics on Attitude and Behaviour.Define questionnaires on the four dimensions in the board-culture cycle:questions posed on actual situation and managements’ intentions what do you consider the score on this item?what do you want to make it next year?Weigh answers in order of maturity.Example for the dimension cooperation/teamplay: meeting frequency of management board is important, however, the way the meeting is conducted has more weight in the maturity score. (e.g.: search for consensus versus majority vote)Choose respondents:management boardsupervisory board/non-executivesvice-presidentsstakeholders (shareholders, employee committee/unions, banks, key customers, suppliers)

what do you consider the score on this item?

what do you want to make it next year?

How does it work?Perform analysisInterpret results:define overall results, specific resultsdefine causal relationshipsresults per dimension and per response groupintrinsic results versus maturityhow do respondents match up in agreement? On which topics is there strong (dis)agreementCompare respondents’ improvement plans with top-down priorities to identify areas of waste or under-investmentDecide on priorities for improvement:do we aim for all dimensions, or do we focus?decide on action plan: what do we do?Repeat analysis periodically, track progress

Examples of possible resultsSummary results. Please note that these results are meant as example.

More info…www.kroese-bb.comKroesebrands & behaviour bvHandelsweg 59e1181 ZA AMSTELVEENTHE NETHERLANDSinfo@kroese-bb.comStand out…sustainably!