When you think of board evaluation services, your first thought may be to outsource the board evaluation process to a third party. A board evaluation software program could also be considered a board evaluation service because it simplifies and streamlines the process and automatically analyzes the results. Board evaluation software is an even better way for boards to get comprehensive, accurate and useful results.
Public boards pursue board evaluations as a standard regulatory measure. While things tend to go well on the front end of the evaluation, the process tends to break down during the final phase, which is analyzing the results and implementing change. According to PwC’s Annual Corporate Directors Survey, 51% of board directors stated that they didn’t make changes as a result of the previous years’ self-evaluations. About a third of board directors said that they felt at least one person on their board should be replaced.
Best Practices for Board Evaluations
Among other things, board evaluations get to the heart of board composition, especially as it pertains to diversity. Another hot topic on board evaluations is the strength of corporate strategies surrounding technology and innovation. Best practices for board evaluations support good governance.
Best practices for board evaluations include gaining board consensus, allowing for feedback, eliminating concerns about security, streamlining the process, and using automation to promote efficiency and accuracy.
To prevent boards from taking a rote approach to the self-evaluation process, boards should engage in pre-evaluation discussions about how they plan to proceed with the board evaluation process. It’s important to get buy-in from the board, not only for completing the evaluation process, but also for completing the process with fidelity.
The first step to planning for evaluations is to reserve the same time of year to complete assessments. The plan should include clear instructions and deadlines. Many boards find that they can streamline the process by delegating the authority to a board committee to oversee the process and make decisions about whether they will evaluate the board, individual directors or both. In addition, board evaluation committees may make recommendations for whether the board will pursue individual assessments or peer-to-peer assessments.
Best practices encourage boards to allow for candid feedback. Boards can best accomplish this by conducting anonymous evaluations, which will be easier for boards that use online board evaluation software, such as the Board Evaluation Tool by Diligent. Diligent’s assessment tool will also ensure security over the board evaluation process, eliminating any fear of cyberattack.
Once the board evaluation process begins, best practices encourage boards to complete it in a timely manner. Online practices support the use of mobile devices, which offer board directors much-valued convenience.
As more digital tools for boards have become available, best practices promote using automation whenever it’s possible and practical to streamline the process while also ensuring accuracy.
Key Determinants of Successful Board Evaluations
One of the key determinants of successful board evaluations is how invested the board is in desiring true and accurate results, despite any personal reservations they may have. Stanford’s Rock Center for Corporate Governance did a study on board evaluations and round that only 23% of board members felt their boards were “very effective” at providing feedback to their peers after board evaluations.
The full board needs to agree on their reasons for conducting board evaluations in order to get the maximum benefit from them. In addition to being motivated by regulatory compliance, boards should agree to have a goal of enacting true change, which is also reflective of a healthy board culture.
One of the major hesitations for board directors around the time of board evaluations is attaining information that requires them to take corrective actions, such as replacing board directors, which can be uncomfortable at best. Although, when replacing directors becomes necessary, board evaluations should support the reasons that make it necessary.
Barriers to Successful Board Evaluations
Some board directors equate board evaluations with such unpleasant tasks as taking a test or going to the dentist. There’s a tendency to avoid them to prevent any sense of feeling uncomfortable. It’s true that board evaluations carry the potential for conflict and anxiety. Evaluations can be a delicate and vulnerable process that holds the potential to weaken board dynamics.
In addition, board evaluations disrupt busy schedules and distract board members from other important duties. Regardless of how difficult it may be to face their weaknesses and failings, board directors need to pursue board evaluations with fidelity to get to the heart of director competence.
Does Your Corporation Need to Outsource Board Evaluations?
In past years, boards sought assistance from third-party experts or consultation services to ensure that they approached their board evaluations as objectively as possible. Using third-party facilitators can be helpful for some organizations, but it’s important to consider the downsides of contracting with an independent facilitator. An outside facilitator doesn’t know your board of directors or what their boardroom dynamics are like. In addition, outsourcing board evaluations can come with a hefty price tag.
It’s possible to conduct board evaluations internally by putting a board member, corporate secretary or in-house counsel in charge of annual evaluations. However, taking this approach has the potential to ignore possible problems with the acting facilitator and reduce the candidness of feedback from board directors.
Diligent’s Board Assessment Tool Eliminates the Need for Outsourcing Evaluations
Your board can have self-assessment data at their fingertips with the Board Evaluation Tool by Diligent. The Board Evaluation Tool integrates fully with Diligent Boards and the other digital tools that make up the Governance Cloud ecosystem.
The program lets evaluation facilitators set up questions in various formats for the most customized questionnaires possible. The program also has a feature that steers users to online glossaries and supplemental information for clarification on the questions. Facilitators will appreciate the ease of setting up close dates for monitoring evaluations and automatic notifications about submission completions.
Facilitators can monitor submissions by checking the electronic signatures that signal the completion of each director’s evaluation. When all the results are in, the facilitator can easily export the results and view them in various chart and graph formats. The results can be presentation-ready within minutes of the final questionnaire coming in.
Boards that fail to become fully invested in the board evaluation process may face shareholder pressure and may ultimately have to deal with activist campaigns, which can be more uncomfortable than the board evaluation process. Implementing the results of a board self-evaluation may highlight the need for major change, like the need to devote more time to strategy. Evaluations may also highlight the need for small changes, like modifying board processes or creating more opportunities for board directors. Regardless of the final outcome, board evaluations are a valuable tool to help boards improve themselves, which is a key component of corporate success.