When the initial requirement for conducting board evaluations landed, there was little guidance on expectations or practices to conduct them. At that time, I published an article
– Board Evaluation: From Bogus to Brilliant - to share the range of ways directors were meeting the new obligation.
Many of the types of evaluations simply did not work.
- Scofflaws were boards insulted by “over-regulation” and ignored the evaluation process, taking a “wait to see if we get caught” approach.
- Perfunctory boards asked their general counsel to make a checklist of compliance topics to be disclosed to ensure their proxy statement had the necessary trivialized minimal statements.
- Back-slapper boards allocated five minutes on the agenda called “board evaluation”. At the annointed time, a director asked “How did we do this year?” The directors nodded, patting each other on the back for a job well done.
- Controller boards performed their own evaluations by assigning the task to one director, who interviewed all the others, compiled the input and made recommendations based on the personal, subjective perspective.
- Conflicted party board evaluations came from board which enlisted a third party to conduct it but selected a conflicted third party, such as a search firm, resulting in biased results.
- Half a Deck board evaluations were done by well-intended directors but the efforts were not at all thorough. They selectively considered elements, e.g., processes and committee structures, while ignoring group dynamics, information symmetry between committees, etc.
Board Evaluations Are More Popular Today
The latest study reported by the Conference Board shows a growth in popularity of board evaluations that are comprehensive assessments of the full board, committees and individual directors.
- S&P 500 companies reporting they conduct such comprehensive evaluations rose from 37% in 2018 to 52% in 2022.
- Russell 3000 companies nearly double in their upgrading to comprehensive evaluations, rising from 18% in 2018 to 34% in 2022.
Moreover, use of independent facilitators to conduct the evaluation is rapidly increasing. The S&P 500 companies report and increase from 14% in 2018 to 29% in 2022. The Russell 3000 companies rose from 6% in 2018 to 15% in 2022.
Board Evaluations Are Getting Better
Boards which take an honest and open approach to evaluations fare better in terms of improving their performance, whether it means making incremental changes or accelerating change over time. There are three orientations in play.
Personal Best. Boards in the group do an earnest job evaluating its performance, year after year. It looks as what it can do to improve, based on its own progress, relative only to itself. What they learn is “Here is how we did last year. Here is how we did this year.” Like athletes hoping to take a few more seconds off their time, a board then makes incremental changes and improve with this approach.
Normative Best Practices. Boards in this group conduct evaluations that include a common core set of key performance criteria, so they can compare their performance to norms within their industry peers. They can learn about best practices used by other companies that may improve their own boards.
Pushers. These boards want to uncover ways to match strategy with performance and add true value. They are committed to performance evaluations that look at true accountability. These boards challenge themselves with new ways to measure their performance. For example, they measure the consistency between a company’s resource allocation and its announced strategy, as well as a set of related strategy consistency measures as indicators for the board’s effectiveness in guiding strategic execution. This group has the truth-seekers, dedicated too maximizing their potential to add value and make a difference.
Where Does Your Board Evaluation Approach Fit?
It may be time for your board to re-consider its evaluation philosophy, goals and design.
We provide independent board evaluations for boards, using a structure approach to evaluate board effectiveness on five accountable levels:
- Board Essentials- Infrastructure: the 13 essentials, e.g., board structure, processes, composition, information transparency
- Effectiveness of Processes and Group Dynamics: Ability of directors wot work effectively with each other and managements
- Alignment and Coalition for Strategy Development: The board’s ability to align with management to define strategy and contribute to successful execution.
- Synchronization for Managing Business Issues: Setting and using clear and viable accountability metrics and synchrony with the business and governance.
- Convergence for Corporate Issue Management: assess the sustainability of the approach to governance and what it contributes to results for the company, shareholders, stakeholder and society.
We offer flexible designs for board evaluations, based on our clients’ preference for in-depth interviews, online elements and customized 360 profilers.
Citation: www.conference-board.org/press/board-refreshment-and-evaluations. 2022.
