Identifying the Obstacles
According to a study by the Rock Center for Corporate Governance, 89% of board members say that their board has the skills and expertise necessary to oversee the company; yet, the research also tells an alternate story.
- Only 57% of directors strongly agree or agree that their board is effective in bringing new talent to refresh the board’s capabilities before they become outdated (Rock Center study).
- 51% of corporate directors say that their board did not make any changes as a result of their last self-evaluation process (PwC’s 2016 Annual Corporate Directors Survey).
- 45% of corporate directors say someone on their board should be replaced (PwC’s 2018 Annual Corporate Directors Survey).
- Only 23% of board members rate their boards very effective at giving direct feedback to fellow directors (Rock Center study)
In a blog series on board assessments, we discuss various obstacles ranging from poor board leadership to methodology.
Develop a Roadmap for Board Assessments
At the start, boards need to determine what they want to accomplish with their board assessment process: Is the board trying to streamline board and committee processes? Align board composition with a new corporate direction? Identify board education needs? The nominating and governance committee is typically responsible for identifying these goals at the outset, which are then used to determine the appropriate methodology, facilitator and frequency. We find that boards may not need to bring in an outside facilitator or conduct in-depth committee evaluations every year, which is why we recommend outlining a board evaluation plan three years at a time.
Take Action on Evaluation Results
This is arguably the most important phase of the board assessment process. How is the board using the evaluation results to improve performance? Sometimes the action taken after a board evaluation can be as simple as tweaking a board process, devoting more time to strategy, or creating more opportunities for directors to build camaraderie outside of the boardroom. Other times, board leadership will need to have difficult conversations with a board member who’s underperforming or whose skills and experience are no longer aligned with the company direction.
Board composition, effectiveness, and accountability remain a top priority… We will seek to better understand how boards assess their performance and the skills and expertise needed to take the company through its future multi-year strategy (rather than the last one).
— BlackRock, Engagement Priorities for 2017-2018
Don’t Overlook Disclosure
Shareholders don’t just want to know how your board is conducting evaluations; they want to know how your board is using those evaluations to improve board quality and effectiveness. Don’t miss the opportunity to tell this story. In the Guide to Effective Proxies, Donnelley Financial Solutions outlines several examples of how today’s boards are visualizing the evaluation process and its impact on board performance.
With a process as important as board assessments, boards must ensure they’re using the right tools to not only protect the data, but visualize the results in a way that allows boards to extract key insights and outline action items.
Conduct Assessments Through Your Diligent App
The Board Assessment Tool allows today’s boards to conduct evaluations and analyze results entirely electronically through Diligent’s board management software. Not only is the process significantly more efficient than the traditional paper process, but it’s more secure.