Measuring Board Performance in the UK - Report Example

Measuring board performance in UK Course: Name: University: Date: Introduction Corporate performance management also known as (Business performance management or, business performance optimization, enterprise performance management, operational performance management), is an organised process that is carried out by different firms/companies, aimed at maximising business performance (Mosimann et al., 2007). This process is vital since it provides information necessary for designing processes and systems that propel business performance. The genesis of performance measurement can be dated way long back in history of business and economics. According to Wade, David and Ronald, (2001), BPM also helps the business to efficiently utilise their resources (financial, human, material and others). Some of the core processes of BPM include; financial and operational planning, consolidation and reporting, business modelling, analysis, and monitoring of strategy linked key performance indicators (Bob, 2007). Some of the methodologies/strategies adopted in evaluation of business performance include; The Six Sigma strategy Balanced scorecard Activity-based costing (ABC) Total Quality Management Economic value-add Integrated strategic measurement Theory of Constraints These strategies give the business a framework in which they can define the parameters most important to them and mostly to be able to define and assess the achievement of set goals. However, among all these strategies the most commonly used is the balanced score card strategy (Cokins and Gary, 2009). According to Office of personnel management, (2001) managing performance is like a daily routine that many managers and boards of a company have been doing without even noticing. This has become their lives and daily basic operation. However, some of the people involved in this have misguidedly assumed that following regulatory requirements has been the sole concern of the performance management and that it only aims at appraising and rate performance despite. When it comes to the need to improve the service delivery, performance measurement plays several key roles which include; (Office of personnel management, 2001) Recognizing and tracking progress against organizational goals, Identifying improvement opportunities Matching up performance against both internal and external standards Therefore, it is important for one to appreciate that performance management is a systematic process that involves; planning work and setting targets, monitoring performance continually, developing performance capacity, performance rating and rewarding good performance (Office of personnel management, 2001). Consequently, performance measurement cannot just be done without one defining the key values that are going to be measured against. These values are the performance indicators which provide the standards to be measured against. According to Parmenter, (2007) performance indicators however vary and can be categorised as either; Quantitative indicators- these are indicators which can be quantified or even presented as a number. They are also easy to measure since most of them can be seen. Directional indicators- these are indicators which are either quantitative or qualitative and show projections (direction) on the organizations progress and suggests alternative move. Financial indicators- indicators used in performance measurement and when looking at an operating index on cost related matters. Practical indicators- these are indicators that cross points with the company processes in place. Actionable indicators- indicators that are in play in an organisation and are used to effect change. Measurement of board performance A company’s board is a smaller but more executable and representative work force that aids a company in running of daily business and also company matters (John and William, 1996). This is to basically mean that the board is a group of selected individuals who works hard to ensure that the organization operations run smoothly, sustainably and more so the company achieves its goal (Financial Reporting Council, 2008). Since the board is the brain of the company it governs, it is important to see to it that the board is up to task in executing its statutory and also other duties in regards to the company. According to the Governance Good Practice Guide, it is important to evaluate the performance of a company’s board in totality and also individual basis. The UK listing rules also require all companies registered on the Main market of London stock exchange, to provide in its annual accounts reports the corporate governance so as to show the performance of the company in relation to the government regulations (Financial Reporting Council, 2008). This is because the company board as the custodian is the one that determines the directions in which the company grows. In addition, for a board to perform effectively and in the interest of the shareholders, good corporate governance should be enhanced since lack of good governance may jeopardize effective performance (Financial Reporting Council, 2008; Companies Act, 2006, S172). The board should also be balanced in order to ensure that its performance is efficient as provided in the Companies Act 2006. Studies by Rhoades, Rechner and Sundaramurthy, (2000), indicated that a weak influence on performance of an organization’s board is brought about by lack of proper balance among the board members and therefore should be one of the most sensitive areas to be scrutinized and corrected. Measuring performance is therefore important since if one cannot measure the activities of an organ it is impossible to control it which makes it even harder to manage and thus cannot make an informed decision on the next step to take. (John and William, 1996). The board according to Chambers, (2008), are the carriers of the shareholders interest, leads by example by setting the right pace and more so empower executive management. Thus, lack of efficiency of the board directly affects the growth of the company. To ensure this, measuring the boards performance can and is achieved majorly by evaluating its performance in its key and also in other responsibilities. A good performance measurement is therefore effective since it provides the management among other things with prior warnings and signs of possible problems giving them guidelines on effective ways to correct them. It also provides information necessary in planning and resource allocation therefore organisations are able to prepare for future operations early in advance (Chambers, 2008). In addition it also generates to employees, customers, stakeholders and the general public, with feedback on the developments of the services and products being provided. To measure the board performance, the individual board members have to first have a common understanding of what is entailed in good performance and its measurement. One example of measuring boards performance is through a framework that asses the board on; Compliance- if the board is compliant to government policies, corporate regulation standards and also to its own mandates of operation. How it addresses the regulations and why it does not. The boards Effectiveness- this measures the quality of the board in regards to its members contribution, skill and also quality improvement. This measures the degree of execution of the mandate it has been assigned and the ability of it to effect decisions. Its impact- this targets to know the ability of the board to meet its targets, provide customer satisfaction and providing strategic direction. Leadership-are they setting the pace necessary for the success of the company, setting new challenging targets and achieving them and more so providing good governance and management. Also added value- this is by trying to see what new has been added in the board, how the board members participate/ are involved in the board affairs. However, just like any other measurement of performance, the board should establish the performance indicators that would help it keep tabs of the results. Some of the indicators used sometimes may either be quantitative or qualitative. Quantitative measurements are easier to measure compared to the qualitative indicators since quantitative ones only measure things that can be seen rather than the impact and output (Parmenter, 2007). Qualitative indicators on the other hand are able to measure the quality of the service and also output of individual board members. It is therefore important for company’s boards to have both quantitative and qualitative performance indicators to assist in decision making (Governance Good Practice Guide, 2007). Measuring individual performance According to Shaw and Mattison, (1999), performance measurement is core in achieving organizational control. In addition to that, it is also a vital component in of all Total Quality Management programs. A good performance measurement framework rather has the ability of enabling one to execute the exercise in an effective manner. A good performance measurement framework therefore should have qualities like; should have a meaning to the company, not repetitive and easily understood by everybody, accepted and executed by teams within the organization, designed based on data of high integrity, designed in form that data collection is rooted within normal procedures, should be able to propel measures that will bring improvement and more so addresses the key objectives and drivers of the organization. In order for one to establish a good frame work for measuring performance there are salient processes that one should go through. An example of this process is summarized below; Implement & review In measuring individual performance also, it is paramount that one uses the performance indicators as guide lines and standards to be able to know the performance of each individual (Hakala, 2008). According to Hakala, (2008), there are many indicators which you can use to measure the performance of employees some of this include; The quality of the job done: this tries to evaluate the value of the job done. Some of the indicators that can be used here are customers rejection of the product offer and complains and also the number of good and positive feedback from the customers. Quantity: this emphasizes most on the number of units produced per individual as compared to the others. Measuring of performance through this indicator is easy since one just requires to keep tabs of the number of units produced i.e. the higher the number the better the performance. However, this kind of indicator might have effect on the quality of product if the employee aims at producing great numbers in order to beat set targets. Timeliness: this measures the rate of performance/ rate of service delivery of an individual within a set period of time. A good example is measurement of customer service, by measuring the number of customers served by an individual per hour or rate of production per hour. Cost-Effectiveness: this kind of measurement is only used to measure performance of those employees who have control over costs in their working capacity. An example is using it to measure the effectiveness of a customer service employee effectiveness to make sales over the phone using the least expense. Manager Appraisal: this kind of employee appraisal is done specifically by the manager to the employee but has a setback since it discourages the active participation of an employee in neither decision making nor the analysis. Creativity: this is can to some extent be viewed as a qualitative indicator to be used in analysis and is hard to measure or quantify. However, in some white collar jobs this indicator is used an example is in the advertisement and marketing jobs that call for creativity to drive the product market. Personal Appearance: most people working in white collar jobs know how to dress for work but still there are those dress codes that are suitable for others and hard for others to follow. Apart from dress code the nature of self presentation can be used as a good indicator of the nature of an employee and even to a larger extent suggest performance levels. Personal Habits: the use of personal habits has been sidelined by some of the managers as indicators of performance. However, habits may give a good direction in the analysis of tendencies of an individual to be distracted or not perform in work places. Some habits like alcoholism and gossip are major detractors and interfere with a person’s and even other workers performance. Adherence to Policy: This kind of performance indicator is to some extent viewed as a contradiction to promoting of creativity from an employee. However, despite such an insight, an employee’s observance of the company’s goals is important and deviation may indicate lack of alignment to the company’s objectives. Self-Appraisal: Self appraisal which allows an employee to evaluate themselves individually is used in line with the management appraisal and act as comparison and reference point to each other. This kind of appraisal may sometimes differ on the perspectives of the employee and the manager on the key factors of performance thus providing a reciprocated and common feedback for adjustments on individual expectations. Peer Appraisal & Team Appraisal: Basing on an assumption that co-workers at similar position have better knowledge of an individual’s performance, it is good to let the employees appraise one another. This type of criteria to an extent is meant to encourage team work for example in manufacturing environments. It is also an easy means to deduce weak links in a group of individuals and also performance and quality of work. “Full-Circle” Appraisal: this type of appraisal is a holistic kind of evaluation that involves everyone in the company. In this evaluation, everyone in the company that interacts with the individual being appraised is involved in the evaluation. Assessment Center: this type of assessment unlike the other appraisals involves the use of professional assessors that may evaluate individuals through use of artificially created work scenarios or even actual work scenarios. This assessment is objectively done in order to eliminate any bias to the assessment quality e.g. personal relationships and favours. Management by Objectives: The employee’s achievement of the set objectives in line with his or her manager goals is evaluated in this type of performance measurement. This process is initiated by action statements such as, “reduce rejected parts to 3 percent.” In this kind of evaluation, the employee is kept focused on achieving the set goals and deviation is reduced to the minimum. Chairman Performance The chairman of a company’s board is responsible for setting the tone and direction of the board as well as its culture of performance (Financial Reporting Council, 2008). He/she is the one responsible for creating the appropriate environment of engagement of all board members and shaping the approach and implementation of important issues. This therefore calls for chairmen who are sensitive to the demands of all parties involved in running of the board and promotes cohesion of all decisions and demands. Consequently, effective chairmen have therefore been known to have forged an open relationship which is based on mutual understanding and trust with their CEO’s (Meynell and Sedel, 2008). None the less, the performance of chairmen of the board should be validated either by self evaluation or through benchmarking by external bodies of specialists. Internal and External auditors Auditors have a responsibility to provide the company with financial information necessary for them to make an informed decision basing on the financial status of the company. Lack of proper audit reports can lead to grave mistakes by the management that could cost the company great losses. Measurements of audit performances can and is mostly done using the balanced scorecard approach (Frigo and Mark, 2002). This measurement is based on the quality of information and advice/guidance given to the Audit Committee and top management. Internal and external audits act as monitors and primary quality control of each other when it comes to the quality of service provided. Some of the key performance indicators that can be used to measure the performance of auditors are; the level of professionalism, quality of counsel provided, timeliness of work product, utility of meetings, and quality of status updates provided to the top management. Conclusion Having an operational and efficient board, executives and employees goes a long way to ensuring the growth of a company. However, there is no “single recipe for having a high-performing board” (Meynell and Sedel, 2008). Due to this variation, it is paramount that a combination of different structures and processes be used so that one can attain a high performance board. It can also be concluded that performance indicators can be as many as possible depending on the company goals and the target group being evaluated. Consequently, choosing the performance indicators should always be ensured so that they address the goals of the organisation (Lin et al., 1998). Since the boards of many companies comprises of the heads of the different departments in the company, their output most of the time is measured in comparison to the performance of their respective sections. This performance mostly is reflected on the financial status of the company that can only be revealed during auditing. This kind of assessment is made using the balanced score card to be able to know the individual output using financial status. However the overall performance of board members is mainly measured using the total quality assessment since it combines use of both the quantitative and qualitative indicators. This kind of assessment gives one a true picture of the board performance in regards to individual and corporate performance. Recommendation Companies aiming at attaining high performance in their boards and also in individuals should try finding a formal third-party to make assessments of the board. This exercise has been found to be valuable in ‘waking’ board members and driving them out of their comfort zones. Such a move also enables them identify other opportunities that are effective in improving overall performance. While designing the performance indicators, it is important that the indicators adequately address the goal of the performance measurement. Performance measurements should also be done frequently in order for one to keep track of the changes in performance. Companies should also adopt different approaches of performance evaluation so as to reduce redundancy in the exercise. Benchmarks should be used frequently in order for the company to be able to compare its performance in relation to the surrounding environment. Self assessment should also be encouraged and done frequently in order for an individual to keep track of his or her performance in relation to the company’s goals. Bibiliography Bob, Paladino, (2007) Five Key Principles of Corporate Performance Management. Chambers A, (2008) Ten principles of corporate governance. Caspian Publishing. Cokins, Gary, (2009) Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics. Companies Act, 2006; S172 Financial reporting council, (2008) The combined code on corporate governance. London Frigo, Mark L., (2002) A Balanced Scorecard Framework for Auditing Departments. IIA Research Foundation. Altamonte Springs, Florida Governance good practice guide, (2007) Hakala D., (2008) 16 Ways to Measure Employee Performance. www.HR World.html Office of personnel management, (2001) A Handbook for measuring employee performance. Performance management and incentive award division. United States. John H. Lingle and William A. Schiemann, (1996) “Is Measurement Worth It?”. Management Review. Lin F., Johnston R., Brignall S., Rhian S. and Christopher V., (1998) Performance Measurement in Service Businesses. Chartered Institute of Management Accountants Meynell L., Sedel R., (2008) In touch with the board. Russell Reynolds Associates Mosimann, Roland P., Patrick Mosimann and Meg Dussault, (2007) The Performance Manager. Parmenter D., (2007) Key Performance Indicators. John Wiley & Sons. Rhoades, D. L., Rechner, P. L., and Sundaramurthy, C. (2000) Board composition and financial performance: A meta-analysis of the influence of outside directors, Journal of Managerial. Shaw A., Mattison (1999) A Guide to Performance Measurement and Non-Financial Indicators. Foundation for performance measurement. Wade, David and Ronald Recardo, (2001) Corporate Performance Management. Butterworth Heinemann. Read More