An annual board effectiveness survey is expected for public companies in Canada, France, the United Kingdom and the United States. The practice has also become more widespread in many Asian Pacific markets and in Spain and Italy. Investors expect boards to be more engaged, knowledgeable and as effective as possible.
Evaluations should be more than a rote exercise. Board effectiveness surveys are valuable tools that help boards improve their performances. It works best when boards commit to giving the process their all and when they have a capable facilitator. Board effectiveness surveys should cover the board’s structures and processes, as well as the board’s dynamics. Also, effectiveness surveys should be highly customized and geared toward the company’s current business context.
While board effectiveness surveys are becoming more common, they’re only capable of producing valuable results when board directors give them the necessary time and attention. Digital tools can be instrumental in helping boards get the most from their board effectiveness surveys. It’s the modern approach to board effectiveness.
Obstacles and Challenges to a Board Effectiveness Survey
Boards will run into obstacles and challenges as they seek genuine answers to where they are lacking in their performance. The ultimate success of the process can only come about when board directors commit to the process, check their egos at the door, and enlist the help of a capable reviewer to lead the process.
Boards that merely “go along” with the process for the sake of compliance or who structure the survey in a way that prevents a true evaluation of the board’s performance only hurt themselves. They will lose a valuable opportunity to gain shared insight into board operations and prohibit themselves from ways to improve its composition, processes and relationships.
Deloitte’s survey on non-executive directors lists the following board evaluation challenges as reported by Russian board directors:
- Processes to evaluate board performance are not sufficiently robust, 61% (vs 28% globally)
- Results of board performance reviews are not used to drive change, 66% (vs 24% globally)
- Board members do not believe they receive sufficient training, 56% (vs 25% globally)
- Board members can be concerned that they get the focus wrong, not striking the proper balance between oversight of risk, growth, performance and strategy, 26% (vs 7% globally)
How to Get the Most Out of Board Assessments
Executive search consultant Spencer Stuart offers up five key principles for getting the highest value from your board effectiveness surveys.
- Identify clear objectives for the evaluation.
The first step in pursuing board effectiveness surveys is for the board to identify their purpose and objectives for the process. This is important because it gives them a reference to measure against at the end.
Establishing the purpose and objectives at the start motivates board directors to commit fully to the process, offer candid feedback throughout the process, and identify roadblocks to effectiveness. When the process is done with integrity, it forces boards to deal with underperforming board directors; whereas, without board assessments, they may have been inclined to overlook lackluster performances.
Boards should decide the scope of the evaluations, which is to decide whether they will assess the board, certain committees, individual board directors, board leaders or some combination. They also need to decide if they will use surveys, interviews or a combination. Boards may also choose to select a topic such as board processes, behaviors, communication, executive sessions, role of the lead independent director, the board and management relationship, or something else.
- The board leader drives the process.
Boards will need an independent person to lead the process. It shouldn’t be the CEO, but it could be an independent board chair, chair of the governance committee or lead independent director.
- Incorporate perspectives from senior managers who regularly interact with the board.
While there may be people within the company who are capable of leading a board effectiveness survey, board effectiveness surveys are often best done by a qualified third-party facilitator who has significant experience in the boardroom and is familiar with governance guidelines and regulations. The facilitator should also be able to provide perspectives on how the board compares to its peers and where they both stand in relation to the evolving standards of governance and best practices.
- Go beyond compliance issues and look at effectiveness across a broad range of measures.
Boards should customize their approach to board effectiveness surveys. In addition to each board’s nuances, they should evaluate the following basic areas:
- Board processes
- Board composition
- Committee organization and processes
- The role of the board and board leaders
- The board’s relationship with the CEO
- Board culture and dynamics
- Potential board development needs
- Overall board effectiveness
- Individual director effectiveness
- Effectiveness of technology and digital tools
- Directors should commit to reviewing results and enacting change.
The process isn’t over when the surveys and interviews have been completed. Surveys should bring out specific areas where boards can improve their effectiveness, either individually or as a board. To make the process truly worthwhile, boards need to give ample time to discussing their findings candidly. Many boards find that the most efficient way to make changes based on their effectiveness surveys is to delegate the task of coming up with recommendations and developing an action plan to the governance committee. Boards that lack follow up after their surveys will likely generate a degree of cynicism about improving effectiveness in the future.
Digital Tools Are the Modern Way to Conduct Board Effectiveness Surveys
Customization is an important part of board effectiveness surveys. Diligent Corporation makes it easy to do with their electronic board evaluation tool. Board reviewers can set up a program using various types of user-tested questions. They can even link questions to additional information or appendices for quick reference and context. Once the surveys have been released to the board, the reviewer can set up deadlines for completion and monitor which board directors completed their surveys.
Board directors will appreciate the convenience of being able to complete their survey at any time of day or night and from anywhere in the world, simply by logging into any electronic device. The program is intuitive and easy to use.
To ensure action-oriented follow up, Diligent’s Board Evaluation Tool allows reviewers to create visual graphics and custom reports and export them using just a few clicks. With Diligent Board Evaluations, boards will view their board effectiveness surveys as more than a pat on the back or a good report card. The tool will become the standard that creates a standard for continuous learning and board improvement.