Please enable JavaScript.
Coggle requires JavaScript to display documents.
Assessment of performance in carrying out governance responsibilities -…
Assessment of performance in carrying out governance responsibilities
Board performance and evaluation
Boards of FTSE350 companies undertake an independent board evaluation exercise at least once every 3 years complemented by formal and rigorous annual evaluation of the performance of the board, its committees and individual director
Board evaluation can take many forms from completing standard questionnaires through to formal party interviews and observation
The Governance Code requires listed Companies to provide details of the externally facilitated board evaluation undertaken
The support and engagement of the chair of the board is often key to a productive evaluation exercise. Board evaluation in whatever form should be overseen by the chair of the board and facilitated by the company secretary with or without external support
Board evaluations are often comprised of two distinct areas: the structure of the board in terms of composition and procedures and secondly the behaviour and activities of the directors individually and colelctively. Individual evaluation should demonstrate whether each director continues to contribute effectively
The fundamental key to an evaluation exercise is for the board to understand what the purpose of the evaluation is expected to achieve
A good independent external evaluator can provide useful insight and comparison to how other boards operate and how other boards have dealt with similar issues. The external viewpoint can be challenging as well as beneficial
Four of the main reasons cited for undertaking board evaluations are
To address a specific need identified by the board
A requirement to benchmark board performance externalyl
To ensure the board is as effective as it can be
Directors observing the benefits flowing from previous board evaluations
Whatever the driving force behind the decision to undertake a board evaluation exercise, all directors need to support the process and the following points should be considered
Without a clear objective any evaluation will be muddled and disjointed with directors and other contributors potentially all approaching the evaluation with a different personal agnda
The evaluations needs to have a clear focus
Not all directors need to be evaluated on all occassions
There might be a focus on the non-executives, executives, chair SIDs etc
While the evaluation will routinely be of director performance by other directors, it may also be appropriate to consider how others that regularly take part in board meetings view proceedings
The format of the evaluation can often be decided by the budget assigned to the project, although with larger FTSE 100 companies budgetary concerns will be less of a constraint
The GC recommends that FTSE companies undergo external evaluation at least every 3 years but it is open to the board to undergo external evaluation
There are as many for as there are against external or internal facilitated evaluations but with external facilitators and commentators often both citing the same benefit or pitfall
Possibly the most important consideration is what will be done with the results of the valuation, how much detail will be reported in the annual report, what actions and follow up will there be
Board evaluation can have significant benefits for the board, individual directors as well as the company and ultimately shareholders and other stakeholders
One of the main objectives is to enable the board to identify barriers tat stop them being as effective as possible and through identification of the problems developing processes and strategies to mitigate or remove those barriers
Benefits
Board processes
Improved meeting effifciency, better time management, tighter focus on relevant discussions
Communication
Improved trust and relationship at meetings, enabling frank exchange of views
Accountability
Better focus on benefits of decisions for stakeholders
Decision making
Identifying barriers to effective decision making, cutting procrastination
Leadership
Reinforces leadership position of the board chair, identification of good and weak characteristics
Teamwork
Better board relationships facilitate active discussions and participation
Division of responsibility
Better clarity of roles within the board and between the board and the board commitees, clear division of responsibilities
Board evaluation should not be seen as a stand alone exercise but part of the process of continual improvement required across all levels of a successful business
Once a board evaluation has been completed, the results must be reviewed by the board and its recommendation acted upon
Listed companies should outline the evaluation process and any recommendations made in their annual report and report back progress on implementing those recommendations in the following years report