Evaluating the board
Board evaluation. Sounds like a performance appraisal doesn’t it?
It’s funny how the words “appraisal” or “evaluation” create a negative response. A good appraisal system should result in constructive feedback which enables the appraiser and appraisee to agree on a personal development plan to improve performance, even for those already performing well.
Similarly, board evaluations should result in the identification of areas where the board or individual directors can enhance their contribution to the success of the company or organisation.
As in previous articles, I must point out that we are not subject to the UK Corporate Governance Code, but we would be wise to consider the Code’s requirements where those requirements make sense for us. The Code states:
“The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.
“Individual evaluation should aim to show whether each director continues to contribute effectively and to demonstrate commitment to the role (including commitment of time for board and committee meetings and any other duties).”
I’ll deal with individual director development later, but let’s first consider the development of the board as a whole. The process must start with a set of questions along the following lines:
1. Is the board operating effectively?
2. Are directors encouraged (or discouraged) from questioning management or the views of their fellow directors?
3. Does the board contain members with the diversity of skills necessary in the context of its strategic plan?
4. Does the board effectively direct, monitor and motivate the company’s management?
5. Does the board fully engage in the development of the strategic plan?
6. Is the board able to clearly articulate the vision, mission and values of the organisation?
7. Are the board members effectively championing these vision, mission and values?
8. Is the board structured appropriately, with committees as necessary and the correct mix of executive and independent non-executive members?
9. Are sufficient opportunities provided for director training? It seldom is! “Once we reach the lofty heights of the board, surely we know it all.” This of course assumes a static environment, which it certainly is not!
10. Is the board’s time used effectively? A common error is to spend a disproportionate amount of time on administrative detail and far too little on strategic planning and monitoring key performance indicators derived from the planning process.
11. Do the directors receive all of the information they need from management and is it on a timely basis?
These are the questions that immediately come to mind, but others could be added. The evaluation process is designed to uncover those areas where improvement could be made. How do we answer these questions? In its simplest form, the board could survey itself. Would this elicit a sufficiently honest response, or even if honest, are the directors stuck in the mode of “this is how we have always done it”?
In any event, to have a chance at an honest response, a third party collecting the information and collating it on an anonymous form would almost certainly be advisable.
Taking this a little further, the IoD and many other consultants, would provide the service of evaluating the board by asking similar questions, benchmarking against the boards of companies in similar industries.
The questions may be asked through a survey, which would be followed by an unstructured discussion which may for example, uncover issues that a director feels is inhibiting the board’s decision making process.
The consultant or adviser may also sit in on board meetings to observe the dynamics of the board, although of course their very presence may influence individual director’s behaviour!
The other level of board evaluation is the evaluation of individual directors.
Research conducted by the Institute of Directors groups directors’ qualities and attributes into several broad areas:
1. “Strategic perception and decision making includes perspective, strategic awareness, vision, imagination, judgment, and change orientation. Decision making includes challenging assumptions, decisiveness and good judgment.
2. “Analysis and use of information includes problem analysis, a consciousness of detail, problem recognition and numerical interpretation.
3. “Communication includes oral communication, written communication, listening, openness and conciseness.
4. “Interaction with others includes impact, persuasiveness, motivating others, sensitivity, drive and flexibility.”
The Effective Board, Bain and Barker (2010)
Firstly, the chairman and the board must evaluate potential new board members with these criteria in mind. The chairman must then ensure that each director maintain these attributes or is encouraged to receive training where enhanced knowledge or skills are required. Not an easy conversation, but failure to identify and act on weaknesses promotes mediocrity.
The truth is, these conversations are probably too rare and we wait until the director in question finally acknowledges for him or herself that he or she has been overtaken by technology or by the mass of complex compliance material he or she is forced to understand.
My view on this, as with performance appraisals generally, is to ask to be evaluated. Yes! Ask the chairman if he thinks there is a way that you could contribute more to the success of the company or organisation. Better that, than waiting for that awkward conversation.
Now remind me in five years time that I said this when I am not as intellectually nimble as I once was!
Roger Gillett is chairman of the Institute of Directors — Bermuda.