Board performance evaluations

Why Evaluate Board Performance?

A properly designed and executed board evaluation provides several benefits:
Objectively identifies current strengths and weaknesses in board processes, capabilities, dynamics and composition

• Enables performance benchmarking over time to measure board development
• Stimulates governance skills enhancement and board education based on developmental insights
• Facilitates analysis of board composition and succession planning needs
• Provides perspective to strengthen board-management relationships and teamwork
• Demonstrates good governance and accountability to stakeholders

Effective evaluations go beyond simplistic measurement of financial performance or achievement of corporate strategy. They incorporate robust processes balanced across objective assessment, constructive feedback, and identification of opportunities to enhance governance skills.

Board Performance Evaluation Approaches

Common methods utilised for evaluating board performance include:

Self-assessments. Directors complete a questionnaire independently evaluating the board's processes, effectiveness and their own individual contributions. Allows introspection but risks inherent biases of directors rating themselves.

Peer feedback. Directors assess each other’s performance via questionnaire or one-on-one interview. Enables insight from peers but some directors may be reluctant to give unfavourable feedback about each other.

Management input. Senior executives provide additional perspective on working with the board through surveys or interviews. Reduces self-assessment bias but risks defensive reactions from directors.

External facilitation. Independent governance expert conducts in-depth review through questionnaires, one-on-one interviews, focus groups and direct observation of board meetings. Provides greater objectivity but involves significant time commitment.

Hybrid model. Combination approach with self-assessments, peer reviews and periodic external facilitation over a 3-4 year cycle. Balances objectivity, self-reflection and cost.

Areas of Focus

A comprehensive framework for board evaluation might examine:

• Board composition, expertise, diversity and succession planning
• Boardroom dynamics, culture and relationships fostering teamwork
• Quality of strategic and risk discussions and decision-making
• Effectiveness of board sub-committees and reporting to the board
• Oversight of organisational performance, strategy, risk management, controls and reporting
• Board work processes including agenda, papers, minutes, presentations
• Administrative operations including induction, training and access to information
• Contributions by individual directors and developmental needs

Leading practices avoid simplistic measurement of financial performance or share price growth as indicators of board effectiveness. Rather, evaluations seek to probe important "soft" elements like boardroom dynamics, organisational culture and tone using multi-rater feedback.

Implementing Board Evaluations

Critical steps when implementing a productive and meaningful board evaluation process include:

• Set clear objectives for the evaluation tied to board governance goals and priorities.
• Determine appropriate methodology and specific areas of focus based on the context.
• Decide participants, including directors, senior management and external facilitators.
• Establish logistics including timing, development of questionnaires, interviews, board observer access.
• Provide participants with guidance on giving/receiving feedback constructively.
• Analyse results objectively by synthesising key themes and triangulating perspectives.
• Allow discussion of findings by full board and with management as appropriate.
• Develop clearly defined actions to address opportunities for improvement.
• Integrate agreed actions into the board's annual work plan and individual director development plans.
• Disclose the process and confirm completion of evaluations appropriately to stakeholders.
  

The chair plays a pivotal leadership role throughout the process to encourage constructive rather than defensive participation and drive follow through on development actions.

Best Practices for Board Evaluations

Certain practices can help make board evaluations as productive as possible.

• Evaluating individual director contributions annually, not just collective board performance.
• Incorporating input from senior executives working with the board to reduce inherent self-assessment bias.
• Using anonymous survey responses, where appropriate, to encourage candid feedback.
• Complimenting quantitative performance ratings with qualitative commentary explaining the rationale.
• Rotating independent external facilitation approximately every 3 years to gain outside expert perspective.
• Holding in-camera discussions by directors without management present.
• Comparing board performance over time and against industry benchmarks.
• Maintaining a future-focused developmental mindset - evaluating to enhance governance, not just comply.
• Ensuring director feedback is specific, evidence-based and focuses on behaviours not personalities.
• Following through on action plans under the active leadership and oversight of the chair.
• Disclosing a description of the process and confirmation evaluations have occurred annually.