Grading the Board: Board Evaluations, Based around Recognised Best-Practice Models, Are Widely Seen as an Important Method for Developing Better Corporate Governance

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CORPORATE governance is defined by the OECD as the "structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined".

The importance of good corporate governance has grown rapidly as a result of the scandal associated with American companies including Enron and WorldCom and in New Zealand with the failure of Feltex and a range of finance companies. This has stimulated the creation of legislation like the Sarbanes-Oxley Act in the United States, while agencies such as the New York Stock Exchange and the New Zealand Exchange have defined best practices in the hope of improving corporate governance.

Board evaluations, based around recognised best-practice models, are widely seen as an important method for developing better corporate governance. The New Zealand Exchange Corporate Governance Best Practice Code endorses regular board and director evaluation, an approach also adopted by others such as the Toronto, London and New York stock exchanges.

Higher investor expectations of corporate governance, together with globalisation and the need for international competitiveness, will continue to drive the importance of board effectiveness and the use of director evaluation.

Director evaluation involves board members undertaking a constructive but critical review of their own performance, identifying strengths and weaknesses, then writing and implementing plans for further professional …