You know you’re working with a group of skilled directors and that your board does good work, but you’d like to quantify it. Or perhaps you’ve identified an opportunity for improvement in one particular area and you want to support your recommendation to the board with some metrics.
How, then, do you quantify the caliber of your board’s performance? Such assessments and corporate governance statistics aren’t merely a curiosity; they can lend weight to the case you may make to direct the board’s focus to one or more aspects of governance performance.
Importance of Corporate Governance Statistics
Your directors can also draw upon corporate governance statistics as they participate in the board’s evaluation and self-assessment processes. Individual directors will already have a sense of board performance but will benefit from having statistics at hand. If your board makes a practice of maintaining governance performance statistics, such data can form a relevant resource for the board’s annual strategy sessions or retreats. If your board develops annual and longer-term goals during or on the heels of its strategy sessions, having governance statistics readily accessible helps the board identify and prioritize those goals.
It’s not only boards that assess corporate governance performance. Moody’s Investors Service, Inc. issued an October 2018 call for market participants’ feedback on its proposed scoring framework for assessments of corporate governance characteristics of publicly traded non-financial corporate entities. In its Request for Feedback (RFF), Moody’s outlined intent for the framework to draw solely upon publicly available information for assessments of five key governance components.
In addition, the EY Center for Board Matters publishes statistics arising from its collection and analysis of governance data associated with over 3,000 U.S. public companies. It produces reports on board composition (e.g., independence, age, gender diversity and tenure), meetings, size, elections, compensation, leadership and more. There are other external sources that publish corporate governance statistics, and your board may choose to identify one or more against which to benchmark its own performance.
Tracking Corporate Governance
What kind of statistics might you consider recommending your board track?
Board independence: What percentage of your directors are independent? You may choose to track the separation of the roles of board chair and CEO. It’s also worth maintaining statistics on independence within each committee.
Board tenure: If you maintain stats on individual directors’ tenure with your board, you can extend that to identify the average board tenure by years. Some organizations view board continuity as key to effective governance and choose against establishing director term limits or retirement ages. For others, this approach may flag the potential for complacency and less effective oversight, including a possible reluctance to challenge management assumptions. When a board’s membership has remained static for years, it’s less likely to reflect diversity or the professional expertise that is increasingly relevant as governance continues to evolve.
This is not to imply that boards should focus primarily on new talent; that would be throwing the baby out with the bathwater. The Harvard Law School Forum on Corporate Governance and Financial Regulation has written about lower risk profiles associated with an eye to balance of tenure. Adopting the measures it cited, your board may choose to maintain statistics on the percentages of directors with tenure in each of four categories: zero to three years, four to seven years, eight to 11 years, and 12 or more years.
Your board may also choose to maintain statistics on attrition rates and contributing factors – such as compensation, directors’ other mandates and so on. This can help inform recruitment practices that will benefit the board and its performance.
Directors’ age: You may focus on your directors’ average or median ages – or you may choose to track the diversity of directors’ ages. If so, your spreadsheet could track the percentages of directors in three age categories: 49 years and younger, aged between 50 and 69, and aged 70 and older.
Diversity: Is the board androcentric, functioning primarily from a male perspective, or do your board’s gender diversity stats suggest otherwise? In this era of enterprise and social corporate governance (ESG), what percentage of your directors bring gender and other types of diversity that will help it achieve a high level of performance?
When considering diversity and governance performance, it’s worth noting PwC’s 2018 report, The evolving boardroom: Signs of change. PwC reported that a significant percentage of the 714 directors it interviewed questioned the motivation behind board diversity. Nonetheless, 84% of the directors surveyed said diversity enhances board performance.
Board expertise and size: Some boards are conscientiously recruiting those with digital, social media and technology expertise. Can your board do so without risk to other requisite areas of expertise, such as audit, HR, risk management or CEO, chair and other senior executive level experience? Although larger boards can create challenges, simple stats that track your directors’ individual and collective areas of expertise could support debates on whether a modest increase in board size might better position your committees and the board itself for effective performance.
Board leadership: Consider tracking the frequency of board elections and the regularity with which chair elections are conducted.
Meeting attendance: You record and likely also track attendance at committee and board meetings. Statistics on individual directors’ attendance rates can form one element of director assessments. You can also identify overall attendance rates for each committee and the board itself. Your board may want to consider whether there’s merit in identifying the percentage of directors who hold fewer (or more) than “x” number of directorships.
Governance: Your committee and board work plans and calendars stipulate the frequency with which
your board should review and update its policies, bylaws, codes of conduct/ethics, committee and board charters or terms of reference (TOR) and more. These documents also stipulate the frequency of planned reviews of the CEO job description, CEO performance management undertakings, and reviews of CEO succession planning. If you track the completion of each such review, which will typically culminate in recommendations or a report to the board, this will provide further quantifiable indicators of board and committee performance.
Disclosure/transparency: Does your board disclose director and CEO/executive compensation, and publish statistics on meeting attendance? You may want to track the timeliness and regularity with which you review and update information published about the organization’s corporate governance procedures, its codes of conduct/ethics, board processes, board compliance and its policies/governance framework.
Assessments and evaluations: Individuals’ self-assessments and meaningful evaluations of committee and board performance should all contribute to board effectiveness. This extends to assessments of leadership at both committee and board levels. When an assessment identifies gaps or a need for agendas to be more strategically focused, a board will logically want to take action to address such needs.
Pressing priorities sometimes override even the best of intentions, though, and a quarter or two might go by without action being taken. If your board tracks its assessment results, you can help ensure that such issues don’t fall off the governance radar.
Ongoing development and education: Tracking the results of your board assessments/evaluations can also support more than board goal setting; it can also serve to identify issues that may be pertinent to board succession planning, recruitment and developmental needs. How much does the board invest in ongoing education and development, and is there a correlation between such investments and performance assessment outcomes?
Compliance and reporting: Document your board’s compliance and reporting responsibilities, and the timeliness and accuracy with which it meets such expectations.
Oversight and monitoring: You may want to turn to statistics to document your board’s performance with respect to its oversight responsibilities. Financial and other items are staples on every board agenda. Have a look at your committee and board work plans or calendars to determine the regularity with which the board reviews and discusses other priorities. Your list may include strategy, CEO performance, CEO and board succession planning, compliance, cybersecurity, enterprise and social corporate governance (ESG), internal and external audits, internal controls, risk appetite and risk management/enterprise risk management, technology and so on. As one example, how frequently (if ever) has your board conducted cybersecurity and other tabletop incident response exercises?
Maximizing Corporate Governance Analytics
In order to maximize the value of your corporate governance performance tracking, you need to make these statistics readily accessible. Diligent Corporation’s collection of innovative software products, known as Governance Cloud, provides portal software, secure communications through Diligent Messenger, board assessments/evaluations, entity management software and more. As a governance professional, you can make both current and historical stats available to dedicated groups or a committee, or the board as a whole.
Your directors will already be accustomed to reviewing statistics as part of assessing the organization’s performance. Have you and your Chair discussed how your board might enhance its own performance by tracking governance statistics? Compiling statistics will imply up-front investments of time on your part but may save you time and frustration in the long run. As you proceed down this path, bear in mind longtime sportscaster Vin Scully’s observation: “Statistics are used much like a drunk uses a lamppost: for support, not illumination.” How will you and your board use yours?