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How to conduct board evaluations - Coggle Diagram
How to conduct board evaluations
Kiel and Nicholson's (2005)
board evaluation framework
What are our objectives?
Who will be evaluated?
What will be evaluated?
Who will be asked?
What techniques will be used?
Who will do the evaluation?
What will you do with the results?
What are the objectives of board evaluation?
Good board evaluation will first include some clear consultancy with key stakeholders, starting with the chair, to clarify the objectives of the evaluation which then drive more strategic answers
Benefits of board evaluation
Leadership
Demonstrates commitment to improvement at an individual level
An effective chairperson utillising a board evaluation demonstrates leadership to the rest of the board
Demonstrates long-term focus of the board
Sets the culture and tone of the organisation
Role clarity
Clarifies duties of individual directors as well as committee roles
Sets a board norm for roles
Teamwork
Encourages individual director involvement
Develops commitment and a sense of ownership
Builds trust between board members
Accountability
Ensures directors understand their legal duties and responsibilities
Sets performance expectations for individual board members
Focuses board attention on duties to stakeholders
Ensures the board is appropriately monitoring the organisation
Improved corporate governance standards
Decision-making
Identifies areas where director skills need development
Aids in the identification of skills on the board
Improves the board's decision making ability
Clarifies strategic focus and corproate goals
Improves organisational decision making
Communication
Builds personal relationships between individual directors
Improves board management relationships
Clarifies strategic focus and corporate goals
Improves organisational decision making
Board operations
Saves directors time
Increases effectiveness of individiaul contributions
Ensures more efficient meetings
Ensures an appropriate top-level policy framework exists to guide the organisation
The FRC's (2018) recognises the importance of trust and buy-in process, created through a collaborative approach to board consulting in their guidance
To ensure a more valuable review, the chair will need to ensure full co-operation between the company and the evaluator, including full access to board and committee papers and information, to observe meetings and meet with directors individually
Who is to be evaluated?
One key choice is whether the board should simply be evaluated as a group or whether the process should extend to individual directors
Although board as a whole evaluation is excellent as a familiarisation tool for inexperienced boards, one disadvantage is that group evaluation may give only limited insight into performance problems. This is sometimes not recognised by directors, who may see individual evaluation as a challenge against their personal egos, the collegiate culture or even their independence
If this is a first attempt at evaluation, or if there are some significant individual sensitivities around evaluation, it would be recommended to evaluate the board as a whole first, one exception to this may be to evaluate the chair's role specifically, being such a key individual in board performance
Four groups may be the subject of evaluation
Board evaluation
This is the most frequent type and involves assessment of effectiveness, structures, operational/design processes and cultural dynamics
Committee evaluation
Similar to the board assessment but at each committee level
Board and committee chair evaluations
Against board approved role descriptions and performance indicators
Individual director evaluations
Either self, peer or key stakeholder assessments against board-approved role descriptions and performance indicators
What will be evaluated?
At a minimum, the evaluation should include some measure of the board's performance against its agreed mandate
Leblanc & Lindsay (2010)
suggest three criteria
Fulfilment of their role description
This will include attendance, meeting prepartion and participation, understanding of governance role, committee service etc
Contribution of specific skills and diverse outlook
Directors will have been selected strategically based on a current organisational requirement
Personal attributes
These will include level of empathy, humility, ability to ask questions and inquire, ability to advocate appropriately, likelihood of derailment
Who will be asked to evaluate?
The vast majority of board and director evaluations ask the board themselves as the sole sources of information
There are a number of other groups external to the board that may be rich sources of feedback
Who is asked must be driven by the evaluation objectives
Spending some time outlining key stakeholder groups (perhaps using stakeholder mapping techniques) and aligning to the evaluation objectives may be useful activities in developing an appropriate board evaluation process
What techniques will be used?
Informal open discussions or structured self-evaluation groups
Benchmarking against recognised practices and codes of governance
Standardised evaluation schemes or questionnaires
Participant observation and analysis
Suggested documents to be reviewed
Names and roles of the people who will be attending the review meeting
Copies of the completed questionnaire
Up to date governing documents
Annual report
Governance policies
Organisation chart
Minutes for the last two years
Minutes of general meetings
Details of quality systems used
Key planning documents
A list of committees and their ToR
Copies of auditors management letters
Details of any significant events
Increase/decrease in acitivites, income or expenditure
A change in senior management
A restructuring
Examples of serious challenges tackled
Who will facilitate the evaluation?
Evaluation is most often undertaken internally as a self evaluation, these can be undetaken by a variety of stakeholders
The company secretary, the SID and/or chair of the board could evaluate the board as a whole, board committees and/or directors
The nominating committee (or independent directors) could evaluate the board as a whole, board committees and/or directors
Directors could evaluate themselves (and each othe by peer review) and/or the board as a whole
Although these may be based on in-depth contextual knowledge and are usually low cost, they are also potentially subjective and self-serving
Two key problems with internal assessments are transparency and capability
Board evaluation is also difficult to conduct and directors may lack competency in and time for, appropriate execution. In this case, appointing an independent external evaluator may ensure greater objectivity
There are two approaches to the role of external board evaluator: one is the facilitation role of a trusted advisor who provides the board with evidence and information with which to judge itself more objectively. The other is to approach an expert specialist consultant who is mor eindependent and tehcnically skillers and who actively appraises the board according to competencies determined between the consultant and the board
What will you do with the results?
What is reported and to whom will also depend upon the reasons driving the evaluation in the first place
If increasing board effectiveness is the original rationale, then findings may be shared first with the chair and then with the board as a whole for subsequent discussion with personal feedback being discussed in one to ones with individual board members
If accountability, reputation management and organisational transparency are the main reasons for the evaluation, then information may also be shared with external stakeholders
The UK Code prescribes that
The annual report should describe how the board evaluation has been conducted, the nature and extent of an external evaluator's contatc with the board and individual directors, the outcomes and actions taken and how it has or will influence board composition
One powerful technique if individual evaluations have been undertaken is for the board to have a facilitated discussion about their own feedback. This can have tremendous impact on board cohesiveness and trust as well as awareness of individual differences - this needs sensitive handling and will most likely require the chair to go first as a role model
Any underperformance might be dealt with through developmental plans, including mentoring or coaching. Supporting a director in relieving themselves of some of their responsibilities or taking a leave of absence may also be short-term practical options
An under-performing chair - due to psychological bias known as the fundamental attribution error may not fully acknowledge any particiarly critical feeback
The FRC Guidance provides a checklist for the chair (or co-sec) such that they are more likely to find the board evaluation process more valuable if
Its recommendations are constructive, meaningful and forward looking
There is a clear set of recommendations and actions and a time period for review of progress against agreed outcomes by the evaluator with the board
It includes views from beyond the boardroom, eg shareholders, senior executives, auditors and other advisors
It includes peer reviews of directors and the chair plus feedback on each director
Good practice observed in other companies is shared
The evaluator observes the interaction between directors and between the CEO and Chair
There is a robust analysis of the quality of information provided to the board
Feedback is provided to each individual board member
The board is challenged on composition, diversity, skills, gaps, refreshment and succession