The growing importance and value of board evaluations

Regular board evaluations can help to reassure stakeholders, and particularly shareholders, that the board is committed to continuous improvement.

Board evaluations can also build leadership capability. Today’s world of complexity, uncertainty, volatility and disruptive change has led Harvard’s Robert Kegan to suggest that leadership worldwide ‘is in over our heads’.

A staggering 75 percent of employees who took part in a Melbourne University Centre for Workplace Leadership survey found that Australian workplaces need better managers and leaders. Clearly leadership development should be a significant component of a board review.

The cultural dynamic of the boardroom is challenging, often poorly understood and a major causative factor of unaligned or dysfunctional boards.

We’re seeing increasing recognition of the importance of emotional intelligence (EQ) and psychological and behavioural typologies. In response to this, Board Accord has incorporated a Sociometric Network Analysis into our evaluations to profile interpersonal dynamics around the table and inform one-on-one coaching to realign directors and management.

The follow-up is just as important as the evaluation, but too often the board either sees the evaluation process as a box-ticking exercise or considers itself to be too busy to engage seriously with the recommendations. We only work with boards that commit to engaging with the recommendations.

Anyone looking to a board evaluation for a quick fix will be disappointed.

The intention is to affirm what’s working, identify where the challenges lie and plot and support continuous improvement of personnel and processes.

A genuine evaluation will challenge individuals, like athletes, to reflect seriously on their current performance and how it might improve.

Jane Stuchberry MAICD believes that boards will benefit from holding a planning workshop to discuss the results and then developing an action plan to address key issues identified in the review:

“An external facilitator can be of great help in discussing the results and resolving issues,” she says. “Sensitive issues, such as board renewal or the relationship between the CEO and the chairman, are best handled one-on-one rather than in a whole-of-board forum. It is also important that the chairman meets with the executive team to provide feedback on decisions made by the board at the planning workshop.”

A balance of qualitative and quantitative parameters, online assessment metrics and personal interviews are recommended. The diagnostic tools should be forensic, concise and user-friendly – leaders don’t want to be bogged down in ‘analysis paralysis’.

The chairman, the CEO and anyone else who actively participates in board meetings should be included in the review.

The evaluation requires buy-in from all who are involved but, most importantly, it needs the leadership team to set an example by embracing the process, confronting the outcomes and implementing the recommendations.

 

The benefits of external evaluations

In the London Stock Exchange Corporate Governance Guide, the chapter devoted to Board evaluation discusses the benefits of external evaluation.

“External evaluations vary from the use of an online questionnaire to an in-depth psycho-analytical assessment. Likewise, the evaluator is interpreted by some chairmen as providing a simple service, and by others as a valuable adviser and critical friend to the board.

“There are contrasting approaches: some evaluators work with a template, which predetermines the role of the board and best practice for directors; others design a bespoke evaluation for every company. Some attend to the historic and/or current effectiveness of the board; others are forward looking, testing the board’s preparation for the future.

“Several methodologies are focused on tangible, visible outcomes such as board papers, processes and structures; others explore less tangible influences such as behaviour, relationships, culture and dynamics.

“It is important, therefore, that chairmen have the right to choose, in consultation with colleagues, an appropriate methodology for the board and the company, including to what extent the focus of the evaluation is on the board’s current performance and/or its future needs, whether individual contribution is assessed (peer review), whether the effectiveness of committees is included in the evaluation, and how the findings from previous evaluations are to be incorporated.

“There are no right or wrong methodologies, but there are different and decisive board requirements, levels of engagement, required skills and competences (from the evaluator), and necessary outcomes.

“In many companies, it is the company secretary who is asked to prepare a shortlist of potential evaluators and make an initial recommendation to the chairman. Although this can be a helpful filter, it is imperative that the chairman, who is responsible for the effectiveness of the board, does not delegate the final decision.

“Experience, skill and chemistry are important, and the chairman has to be comfortable that an individual or firm will be able to maximise the long-term benefits of an evaluation for the board and the company, and be satisfied that the evaluator can conduct the work with sufficient objectivity and independence.”

 

Getting the most from the review process

A review can help to:

  • Clarify strategic focus.
  • Make the Board accountable – ‘The essence of good governance is accountability’. 
  • Strengthen leadership.
  • Sharpen role clarity, and team work, particularly between CEO, Senior Management and Board.
  • Improve decision-making processes.
  • Improve interpersonal relations around the table.
  • Improve governance structures.
  • Identify skills gaps.

    A review can assist individual Directors to:

  • Reflect on why they are sitting around the boardroom table.
  • Align their personal goals and aspirations with that of the organisation.
  • Identify personal development needs.
  • Identify professional development needs.
  • Reflect on whether their skill sets are being well utilised in the boardroom.
  • Reflect on their personal level of commitment.
  • Encourage a sense of belonging and greater confidence in contributing.
  • Ensure they understand their legal and fiduciary responsibilities.
  • Set performance expectations for directors
  • Support greater collegiate cohesion and a rewarding participatory experience.

While the review process may not necessarily be comfortable it should always leave the directors feeling reinvigorated, more purposeful, more committed and more capable. A good review will be one that re-energises the people around the table. That’s why it is crucial to get buy-in from all participants, for the process itself and for following up on recommendations.

An externally led review also takes the onerous responsibility off the Chair from being forced into ‘bad cop’ with a difficult colleague. The consultant can address the issue as an unaligned observer and build bridges when appropriate.  
 

References available on request.

 

Robert Gordon is the founder and director of programs at Board Accord. He currently consults to a diverse portfolio of boards, coaches many senior corporate executives and presents to corporates, educational institutions and conferences. www.boardaccord.com.au

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