This is Part 4 in our blog series on Board Evaluations. To access other posts, see below:
- Part 1: Back to Basics: Why the Board Evaluation is a Critical Building Block
- Part 2: What Are the Barriers to Effective Board Evaluations Today?
- Part 3: Five Elements of a Successful Board Evaluation
- Part 4: Recommended Evaluation Formats: Mapping a Three-Year Plan
- Part 5: How and When to Choose a Facilitator for Your Board Evaluation
- Part 6: Three Guidelines for Taking Action on Board Evaluation Results
Many boards experience what we call ‘board evaluation fatigue’. By the time another annual board assessment rolls around, board members feel like they just finished the last one merely months before. The board and its committees may not have had time to fully implement the changes outlined by last year’s results; thus, directors may be less engaged or less likely to feel like they have new information to contribute.
To avoid fatigue, Boardroom Resources recommends mapping a three-year roadmap for board evaluations, which focuses on different levels of performance (e.g., full board, committees, individuals) and utilizes different formats (e.g., outside-facilitated interviews, inside-facilitated questionnaires) each year. Here’s why:
One year is rarely enough time to implement changes and assess their effects.
If done correctly, last year’s board evaluation produced a series of action items, which the board agreed to implement. Some of those changes may be easy to make within the span of one or two board meetings (e.g., spend more time on strategy); however, most action items will take significantly longer to implement and even longer to assess effects (e.g., form a cybersecurity committee, recruit a new director with ecommerce experience, upgrade the board portal). We find that boards are more productive when they take a deep dive every second or third year, as it affords appropriate time to execute and measure.
Independent outside facilitators are not necessary every year.
While facilitator independence is critical to an effective evaluation process, it’s not usually necessary to have an outside facilitator every year. In fact, there can be benefits to using an inside facilitator on rotating years. The inside facilitator could be the general counsel, corporate secretary, or possibly the non-executive chairman (although we don’t always favor sitting directors conducting their own evaluation). The inside facilitator brings to the evaluation process an intimate knowledge of the company strategy, board objectives, and individual directors, which can contribute to a highly targeted and introspective assessment. Furthermore, using an outside facilitator can become costly and, in our experience, just isn’t necessary every year for most companies unless they have just completed an acquisition, onboarded a new management team, or experienced a watershed event.
Three years gives boards a bird’s eye view.
Now that annual board evaluations are required for NYSE companies and strongly recommended by Nasdaq, it’s easy for boards to treat the evaluation process as a matter of compliance: How can we check the box and move on to other important agenda items? As a result, boards will often use the same evaluation format year after year because it’s ‘ready to go’ or because it has worked in the past. In mapping a three-year plan, boards are encouraged to take a critical look at what’s working and what’s not when it comes to facilitators, evaluation topics, question design, etc. Sometimes even a small tweak in the evaluation process (e.g., open-ended vs. close-ended questions) can improve the quality of insights and better support the board with its long-term strategy.
It’s often unrealistic for boards to take a deep dive into every aspect of governance, every year. The quality of insights always improves when the board can focus its attention with ample time to measure past efforts.
TK Kerstetter, CEO of Boardroom Resources
What Could a Three-Year Plan Look Like?
Before we outline an example, it’s important to remember that a multi-year roadmap will look different for every board. Given the complexity of your industry or the structure of your board, perhaps it makes sense to bring in an outside facilitator or conduct peer reviews more frequently. This blog is not intended to focus on specific tactics, but rather the importance of having a multi-year plan. Here’s what one may look like:
Year 2: Focus on committee performance including committee processes, composition, and leadership. Another set of action items will be agreed upon by the board and assigned timelines and ownership. Full-board performance will be assessed on a simpler scale (e.g., interviews by an inside facilitator) and will gauge the progress the board has made on last year’s action items.
Year 3: Conduct peer-to-peer board evaluations. For this process, an experienced facilitator is important; he or she may administer a questionnaire and/or sit down with individual board members to ask them about each director’s strengths and areas of improvement. Each director’s results are individually discussed with the facilitator or an internal leader on the board.
Peer-to-peer evaluations are a potentially contentious evaluation tactic, but also among the most effective for driving change in director behavior. As we’ve stressed throughout this series, these one-on-one interactions (and the potentially difficult conversations that follow) is where today’s board chairmen or lead directors earn their fee.