BOARDROOM BEST PRACTICES

Improving the Board Evaluation Questionnaire

As a report by the Berkhamsted, UK-based Ashridge Business School shows, UK board evaluation questionnaires tend to only result in boardroom process improvements, while it is board performance as a whole that needs to be carefully evaluated. To improve, board evaluations should act as a catalyst to bring difficult issues into focus. Here is a list of steps to take to move in that direction.

The Board Evaluation Questionnaire and Ineffectivety

As a report by the Berkhamsted, UK-based Ashridge Business School points out,  most UK board evaluation questionnaires don’t have much effect – they tend to result only in boardroom process improvements, and they rarely have any effect on board composition. UK board evaluation questionnaires tend to be limited to topics like the organisation of meetings, agendas and time allocations. Only one in five chairmen had changed individuals on the board at least partly as a result of board evaluations.

Too often, boards are making extensive use of the ‘comply-or-explain’ principle, simply explaining why a more comprehensive review of the board – supposedly – isn’t required. While UK corporate governance allows for this, it is not going to make the board perform better, nor will it show what director contributions are.

In other words, getting around doing an evaluation may be permitted, but it’s not good for your company. As an external evaluation is required every three years for FTSE-listed companies, and for the largest private companies, that risks becoming a convulsive upheaval if the interim internal evaluations are only cosmetic.

What Board Evaluation Questionnaires Should Do

Instead, what is sought is a full-scale review of how the board is making a difference, where and how it is effective, and how individual board members are contributing to those efforts.

The chairman is the leader of the board evaluation process, and if the chairman does not align the scope of the process with the company secretary and the board members, then the chances of success are small, as a report by the Institute for Chartered Secretaries and Administrators shows.

Similarly, the chairman should have formal, individual discussions with each director as part of the evaluation process, yet few companies actually do this. According to the study, few evaluations involve follow-up or counselling with individual directors on their personal style or behaviour, despite the fact that there is an opportunity here for boards to give leadership to the rest of the organisation on performance management and personal responsibility.

The board evaluation process, along with judging director performance, should set objectives and goals for each director, as well as for the board as a whole, and for board committees.

The board’s development plan should be reviewed and changed based on the performance review provided by the evaluation.

Then, there should be an effort to benchmark the board’s performance against those of other companies.

“This kind of evaluation measures the board’s performance against generally accepted norms and best practices. One element is board orientation that describes the fiduciary responsibilities required of board members by law and defines the proper roles of leaders, staff and volunteers. This assures that the board comprises members who accept that their duties are serious, that their responsibilities are to the membership as a whole and that their job is to steer, not row,” according to a note by the Forbes Group.”

Board evaluations can be done with self-assessment instruments. Good ones describe best practices in areas such as strategic thinking and planning, fiduciary responsibilities, board selection and orientation, board operation and board/staff relationships, and ask respondents to rate their board against them by answering a few closed-ended questions. The instrument also should allow for open-ended comments on how board performance could be improved in each area.

“It is a good idea to have a non-stakeholder administer, tabulate and facilitate discussion of the results of the self-assessment,” the note adds.

Finally, a comparison should be made with other companies with a similar board structure. Results at the other company, and the importance of the contribution of the board, should be viewed objectively, and then compared with the results and accomplishments of both the board and management at home. If another company has achieved successes through governance transformation, a side-by-side analysis of their leadership policies and decision-making processes should be made for comparison with those of the home company.

Board Evaluation Questionnaires and Shareholders

Board evaluation questionnaires should also include shareholders. Certainly, reporting to shareholders is a legal requirement, but making them part of the board evaluation process goes a long way toward assuring transparency and avoiding the growth of activists.

A company planning to have its board meet directly with shareholders or participate in an engagement campaign should ensure that the process is planned, initiated and controlled by the company, not by shareholders, as a recent report explains.

“The agenda for meetings should be set by the company, not by shareholders. In most cases, the board’s purpose in meeting with shareholders should be for the directors to listen and learn rather than to debate. A company may decide to go further and establish a formal program for conducting periodic board-shareholder engagement. In that case, the first step is to make sure that opening boardroom windows won’t reveal internal problems. To ensure a clean house, the board should review the results of its annual evaluation and take steps to implement any meaningful recommendations.”

Diligent Board Evaluations enables high-quality performance reviews

To ensure effective boardroom consideration of all issues, including succession (refreshment), Diligent Board Evaluations provides the ideal environment.

Part of Diligent’s Governance Cloud, Board evaluation questionnaires and reporting have never been so easy. Robust analysis tools generate board assessment reports with just a few clicks. Multiple report formats share information in the way that best serves the company secretary, the administrator and the board.

There are powerful assessment creation tools with multiple question types, innovative solutions for glossaries and supplemental information, and e-signature sign-off. Diligent Board Evaluations supports safe and secure recordkeeping. It’s possible to view past evaluation results with just a few clicks. Directors and administrators can also count on 24/7/365 access to award-winning support.

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