For corporate boards, it seems like the eyes of the whole world are on them. Shareholders are more critical of who serves on the board and what skills they have than ever before. If that isn’t enough pressure for boards, they continue to operate in a weak and fluctuating economy. Global pressures, increased regulatory concerns and other issues are placing emphasis on board performance.
Multiple Pressures Create the Perfect Storm for Seeking Quality Board Assessments
These circumstances are colliding to create the perfect storm for boards as they pursue their annual board self-evaluations. Board assessments stand as a measure for how boards are performing against the objectives and goals that they set for themselves. In both rules-based jurisdictions and principles-based jurisdictions, boards recognize how useful and important board assessments are. In fact, many boards are beginning to evaluate individual board directors in addition to the board overall.
Timing can be an important factor for when boards perform their self-assessments. Some boards prefer to tie their board assessments to the stage of the company’s life cycle or strategic planning cycle. Board assessments are an exercise in learning how they can improve. Things like corporate structure, board culture and the board’s current situation play a role in how corporations approach board self-evaluations.
Board self-assessments are important because they strengthen how corporations operate, which has a strong relationship to how they govern. Every stakeholder has something to gain from boards that perform well and that practice good governance. Board self-assessments bring value to board directors, shareholders, managers, the organization and, ultimately, clients and customers.
The Wrong Approach to Board Assessments
Boards should come away from the board assessment process with results that are meaningful and actionable. Whether that actually occurs depends on the level of trust that the board has among its members. Board directors who share a strong camaraderie and a high level of trust will be able to respond candidly to the questions, which will yield the best overall results.
Board assessments are not an appropriate arena in which to demean or embarrass board directors. Board evaluations will lose their effectiveness when board directors use them as an opportunity to place blame or to point fingers.
Targeting Areas of Board Self-Assessment
Boards have an infinite number of areas that they can look at to assess. Unfortunately, there’s no universal standard or commonly accepted format for board self-evaluations. It’s often helpful for boards to break the questions down into categories. According to Deloitte, boards may consider tackling four major areas of governance, including board structure, the board’s role in governance, board dynamics and functioning, and financial reporting and auditing.
Questions concerning board structure incorporate issues such as board and committee composition. This accounts for ethnic and gender diversity and size of the board. This section should assess whether meetings and other board processes are being held too frequently or too infrequently. Questions should review the effectiveness of board and committee charters and the competencies of the members serving on the board and committees.
Board’s Role in Governance
Oversight is a broad term that encompasses the board’s role in strategic planning. The term oversight also includes the board’s competence in monitoring policies and systems and in implementing strategic plans. The board’s role in governance includes playing a supportive and advisory role to managers, and boards should assess their strengths and weaknesses in this area as well.
Dynamics and Functioning of Boards
This category may assess standard board functions like the board calendar and agenda. It should also examine relationships such as the interactions and strength of communication with the CEO and senior executives. These questions should also explore how cohesive the board is, and whether all board members engage and participate at the level they should. The board chair has a huge impact on board dynamics and functioning. Some boards evaluate the board chair role separately from other board roles.
Financial Reporting Process, Internal Audits, Internal Controls and Risk Management
Strong internal controls are a vital necessity in today’s corporate market because of the complexity and pervasiveness of risks. This category includes challenging topics like abusive related party transactions, the strength of financial and other internal controls, whistleblower policies and risk management.
Software Solutions Streamline Evaluations and Yield Actionable Results
Of course, examining so many areas of competence is a time-consuming experience, but it doesn’t have to be. Software solutions create a process for board evaluations that’s far less time-consuming than manual processes. Perhaps more important, by using a program like Diligent Evaluations, boards can save questions from year to year to evaluate and compare progress over time. It takes little time to update questions annually. A software solution helps to standardize the process for board evaluations, which makes the results easier to compare and contrast.
Diligent’s board assessment tool keeps board evaluations interesting by allowing board administrators to use various formats for the questions. This is a strategic way to change up assessments without compromising the results.
The program couldn’t be easier or faster to use. The board administrator simply pulls up the questions and reviews them for relevancy. Once the questionnaire is ready, the board administrator simply clicks on the names of board directors and sends it to all of them at once.
The evaluation tool is mobile-friendly. Board directors have the option of starting the evaluation when they have time, saving it and completing it later.
Administrators can easily track who has opened their questionnaires and get notifications when evaluations are completed and submitted.
Once all the results are in, board administrators can pull all the information together in a few clicks. The program automatically creates charts, graphs and other visuals so the information is easier to digest and analyze. Board administrators can even download the results in various formats to use during presentations.
Evaluation Results Lead to Insightful Results
When board evaluations are done with integrity, the results may motivate changes to board policies and processes. The results may also signify changes in board composition or committee structure. Overall, for the evaluations to be considered successful, boards should be able to create an actionable plan for improvement from the results.
Boards that struggle with ineffective board evaluations often enlist the help of a professional facilitator or governance expert to conduct their board evaluations. This can be an expensive approach. Diligent’s board assessment tools put the control of the process with the board administrator, who has the flexibility to modify the process to gain the maximum benefit from the evaluations.
Board directors can complete their evaluations inside the tight security of Diligent Boards, which is a board portal designed with corporate boards in mind. Diligent Boards and Diligent Evaluations are just two of the valuable software programs that make up the Governance Cloud — a suite of electronic tools for total enterprise management governance with seamless integration.