By Kerryn Newton, CEO, Directors Australia
It is widely accepted good practice for boards to undergo regular board performance evaluations. In some cases, this is mandated by regulation or policy.
We have facilitated board evaluations for many companies within varied ownership structures and in a multitude of industries. Common feedback from the boards we work with is that evaluations provide benefits in:
- identifying whether the board is spending sufficient time on strategy – and, if not, how it might achieve that
- clarifying roles and responsibilities between the board and management
- revisiting the board’s committee structure
- improving board dynamics
- examining where the board might have gaps in its collective skills, experience and/or diversity
- refining the content and format of information presented to the board
- improving the efficiency and effectiveness of board meetings
- enhancing decision-making by the board, and
- streamlining the board’s processes.
So how can a board get the most value from a board evaluation?
1. Consider the timing: Consideration should be given to the timing of a board evaluation. Board evaluations shouldn’t be conducted just because there are issues in the board. Indeed, many of the boards we work with are performing well and see regular externally-facilitated board evaluations as key to their continual improvement. However, other factors to consider regarding timing include changes in the board’s membership and other matters on the board’s agenda which might detract from the evaluation getting the attention it warrants.
2. Use the right methodology: The board evaluation methodology should be tailored to the scope and objectives of the particular evaluation as well as the size, nature and circumstances of each organisation. We do not advocate a ‘one size fits all’ approach.
In our experience the most productive board evaluations are those where the facilitator takes a developmental rather than judgmental approach and works constructively with the board to identify areas for board improvement and practical and innovative ways to realise those improvements. Focussing on key areas for improvement rather than developing a ‘shopping list’ of recommendations is also important.
There are risks with an over-reliance on surveys of directors as part of the evaluation process. Survey instruments in the early stages of an evaluation process ensure coverage of issues, promote reflection by directors, and provide base line data. However, there is a danger if survey responses are treated as the sole information source and the evaluation is simply detailed statistical data and graphs based on survey responses. Directors interpret survey questions differently and respond to survey questions according to their own rating scale. Additionally, survey responses alone lack context, nuances and depth.
Rather, we consider that survey responses should be used to develop initial insight into the way the board works and how it might improve its performance. They facilitate the start of a conversation with the board rather the totality of the evaluation process.
Over-reliance on benchmarks with other boards in a board evaluation (usually also based on director survey responses) can also be a risk. Firstly, as with all benchmarking, it is critical to compare like with like. Comparing survey responses regarding one board to general board benchmark survey responses is difficult as a wide range of organisations are likely to be included in the benchmark pool. Secondly, there is a risk that directors will be less than forthcoming in survey responses when they know that they are being ‘benchmarked’.
3. Invite feedback from beyond the board itself: We strongly support board evaluations including the views of executive managers who regularly interact with the board.
Good governance requires the board to oversee and work effectively with management. There is always a risk that the board perceives they are doing a great job but that executive management believes they aren’t being really tested and/or supported by the board. Performance reviews of individuals often involve 360 degree feedback so why should a similar approach not apply to board evaluations?
Seeking the views of management can also bring out suggested improvements from their perspective in a constructive and, if necessary, de-identified way.
In some cases feedback on the board might be sought outside the company and include, for example, major shareholders, funders, and regulators.
4. Seek to get ‘buy in’ from the board: The evaluation methodology should include a workshop where the board can come together to discuss issues arising from the evaluation and collectively agree on how to address those issues. This is critical to achieving ‘buy in’ from the directors.
5. Develop and stick to an implementation plan: Having an implementation plan for recommended actions arising from the evaluation is the most effective way for board evaluation outcomes to be delivered in practice. The implementation plan with a status update should be on the board’s agenda periodically (say every quarter), and inform the subsequent board evaluation process and objectives.
Directors Australia facilitates board, committee and director performance evaluations across all market sectors and industries.