By Andres Bernal – Partner, Governance Consultants SA
There are two main global corporate governance challenges: how to govern conglomerates and how to really improve a board’s performance.
Although it is easy to find abundant academic research and theories about these topics, there are only a few good samples to learn from. A case that deserves to be highlighted is how Grupo Energía de Bogotá (GEB), a Colombian listed multinational group controlled by the city of Bogota, has impacted its governance model through better board evaluations.
Our experience as governance advisors of several Latin American corporations and especially facilitating board evaluations, has shown us that a good board evaluation system is the origin of internal conversations that lead to boards that create value. At the same time, through a conscious and deep evaluation, boards have been able to improve their effectiveness, identify needs or knowledge and introduce operational adjustments (such as new committees, changes to the annual board agenda, better quality of information and enhanced mechanisms for following up a board’s decisions).
“A good board evaluation system creates a great transformation that is in the end transferred to financial performance”
In GEB’s case, a key foundation for its transformation was the adoption of a consistent strategy for board evaluations. This strategy has been applied through a board evaluation system based on a combination of four elements: self-evaluation, peer evaluation, feedback from management, and external expert guidance. This strategy has contributed to address different challenges to make the group’s boards better governing bodies. Self-evaluation facilitated internal analysis and discussions on how the boards could be more effective and better address their responsibilities.
Through peer evaluation, members have accessed individual feedback about their work (in our methodology peers assessed other member’s knowledge, preparation, contribution and assertiveness). Feedback from the management about the work of the board, contributed to identify the areas in which it needs support, leading to enhance board focus. An external guidance support contributed to preserve confidentiality, maintain an objective point of view and access best global practices. The main lesson in this case is that a good board evaluation system – properly executed through the right leadership and support from the group’s CEO – creates a great transformation that is in the end transferred to financial performance. The experience of Grupo Energía de Bogotá has shown:
1. The board of the holding company has successfully set an example for all the companies in the group about the implementation of different evaluation systems. The board evaluation system has exponentially created cultural transformations that aligned and incentivised individuals all along the ‘chain of command’ of the holding and its subsidiaries
2. A systematic board evaluation strategy has enabled the consolidation of governance data to have a comprehensive view on how the boards within the group are operating. The evaluations results are gathered in a business intelligence platform, which facilitates different kinds of analysis to implement improvement strategies (training, new policies and board composition, among others)
Finally, through this evaluation strategy, holding and subsidiaries can better adopt innovative initiatives to maximise business growth and development through a better decision-making process. Additionally, it has promoted and reaffirmed a culture of accountability, ethics and transparency that unfolded from the boards to management and operational teams. The logic is simple: companies are made from decisions and decisions are inspired, made and controlled by boards. If the board’s method to make decisions improves (through a good board evaluation strategy), the quality of decisions will consequently make better companies.
About the Author:
Andres Bernal is Partner at Governance Consultants, a specialised consulting firm in governance for Latin American companies and leader in boards evaluations. He has led several corporate governance initiatives in the region, including best practices implementation in listed, financial institutions and state-owned companies; training of directors; and building regulatory frameworks.
Andrés has conducted corporate governance projects for institutions as: OECD; Lima Stock Exchange; Colombia Stock Exchange; Grupo GEB; CAF Banco de Desarrollo de America Latina, among others. Andres specializes in corporate governance for State Owned Enterprises and Financial Institutions in which he has implemented good practices in more than 20 companies in Latin America.
Andres holds a law degree from Universidad del Rosario (Colombia) and an LLM in Corporate & Finance Law from Widener University – Delaware School of Law (US). Andrés is certified trainer of the Global Corporate Governance Forum, has a LEAD certificate in Corporate Innovation from Stanford University and teaches corporate governance in several universities of the region.