Evaluations of Board of Directors Effectiveness
The board of directors should be able to understand their responsibilities, recognize and assess risk, and foster a culture that encourages value creation. To accomplish this, boards need to be efficient, yet they are often evaluated in the past, i.e. after an incident occurs.
The best boards don’t focus on reports and compliance and instead work with management to maintain performance and determine the direction for the future. To do so, they are examining their governance structures and procedures. In order to do this they are conducting rigorous tests to determine their current levels of effectiveness.
These assessments often uncover various problems and obstacles, ranging from operational issues that can be easily addressed about meeting length and agenda composition to thornier challenges like the effectiveness of the board’s role in strategic decision-making and the lack of knowledge or competencies, as well as executive and director succession planning. These evaluations are usually a combination of self-evaluations from directors as well as the entire board, and third-party facilitation.
If it is conducted by the board, or by independent consultants hired to provide unbiased insight and perspective, most effective evaluations are holistic that look at all the aspects of a winning board structure, process and people. They also include one-on-1 interviews with directors in order to obtain important, precise, sensitive and candid feedback that may not be obtained by questionnaires on their own. They also offer actionable recommendations that directors are obligated to implement within a reasonable period of time.