Board evaluation

How does a board get the most from a board evaluation?

One of the keys things that boards can do to help get the most out of board evaluations is to ensure there is clarity of purpose and ‘buy in’ from board members regarding the approach chosen for the evaluation. The most effective board evaluations I have seen have been where the chair takes an active role in helping to ensure the evaluation process is ‘fit for purpose’ and agreed by the board, the board is genuinely open to change and looks for opportunities to improve, collegiality is maintained, and people are not overly protective or sensitive about feedback obtained. In addition, the issues being considered should be appropriate in the board’s circumstances, board members should all be given an opportunity to input, their views should be treated with respect and any confidentiality maintained. Also, importantly, there should be follow through on agreed outcomes.

What should be assessed in a board evaluation and how?

What is assessed, and how, really depends on a board’s circumstances. There are certain core elements that form the basis of most evaluations such as board size and composition, board dynamics, the quality of the information the board receives, how board meetings are conducted and the nature of board deliberations and decision-making. Some organisations opt to have a formal board evaluation or wider governance review every 2 or 3 years, often in conjunction with an individual director performance evaluation. In the interim, they may conduct board committee evaluations or skills/experience audits. Some boards seek to benchmark their results against their prior board evaluations or against benchmarks provided by external experts.

Who should lead the board evaluation? And, should it be internally or externally conducted?

It is useful to think of a board evaluation as being a collective responsibility for board members. Having said that the chair often has a valuable role to play in helping to ensure the particular evaluation process in question is ‘fit for purpose’, and in dealing with issues raised during the process. In some cases (such as where there is an Executive Chair) it may be appropriate for a lead non-executive director to fulfil this role. Many organisations will engage external experts to provide a set of evaluation questions, gather feedback from board members, make recommendations, and/or facilitate or help guide board discussions.

What should be disclosed publicly about the results of a board evaluation?

What should be disclosed to external stakeholders about the results of a board evaluation is a murky issue. On the one hand disclosing evaluation outcomes and resultant actions can help to give external stakeholders a better line of sight into board performance matters. On the other hand, these could be taken out of context, and there may well be personally or commercially sensitive issues that arise during evaluations. Disclosure of all evaluation outcomes and actions may also be counterproductive insofar as this could cause boards to be ‘more sanitised’ in their findings. It is worth noting that the ASX Corporate Governance Council has recently released guidance that says when disclosing whether a performance evaluation has occurred a listed entity should, where appropriate, ‘also disclose any insights it has gained from the evaluation and any governance changes it has made as a result’. While this is guidance only, it is a potentially significant change to current practice for many organisations.

What are some of the biggest mistakes that should be avoided when conducting a board review?

Board evaluations can quickly breakdown if there is not an atmosphere of trust among board members, and a willingness to contribute and address constructive feedback. Evaluations can also falter if participants get caught up in the minutiae and lose sight of the bigger picture of performance enhancement. For some boards it can be a case of ‘too much too soon’, and it may be appropriate for them to opt for a guided self assessment rather than an external evaluation. The selection of an external expert can also be a key consideration, with obvious risks arising from engaging domineering or strongly opinionated individuals with personal biases. Another common mistake is falling short when converting agreed outcomes into actions.

What are some of the governance issues that have come up in the governance reviews Company Directors has undertaken for its corporate clients?

Issues that Company Directors sees being raised most frequently by boards in the governance reviews it provides relate to less than optimal board composition (mix of skills and experience), lack of a regular and properly structured board review or evaluation process, not enough follow through in respect of actions identified in previous board reviews, and shortcomings with respect to arrangements in place to govern organisational risks.

From what you have seen in board reviews, what are some of the hallmarks of ‘great’ boards, which set them apart from ‘good’ boards?

Great boards invariably have a highly effective chair who has the respect of their fellow directors. There is clarity of understanding and purpose concerning the board’s role, and how the board can help drive the performance of the organisation. There is a well thought through mix of skills and experience on the board, which is closely linked to the organisation’s business and strategies. Each individual director is highly capable and has their own unique value proposition to the board — with no one being ‘surplus to needs’. There is a culture of trust and respect among board members, which includes both collegiality and collective permission to constructively debate issues. A culture of continuous improvement also exists — with recognition that governance arrangements at any point in time are part of an on-going journey of improvement.