Magazine article New Zealand Management

Better Board Evaluation Options

Magazine article New Zealand Management

Better Board Evaluation Options

Article excerpt

Byline: Iain McCormick

Evaluating the performance of any board, its committees and its individual directors is a responsibility board chairs simply shouldn't shirk.

It involves directors undertaking a constructive but critical review of their collective and individual performance; identifying strengths and weaknesses and implementing plans for professional development.

The aim is to help boards think more strategically, make better decisions and move toward best practice governance. A raft of board evaluation systems that include simple paper-based templates, web-based tools and interview-based evaluations, now exists.

The pressure to embrace board evaluations sprang largely from the corporate governance disasters that led to the implementation of the Sarbanes-Oxley Act (2002) in the United States. Companies listed on the New York Stock Exchange had to both conduct board evaluations and disclose the results. Board committees, including the audit, nominating and remuneration committees, also had to conduct regular performance evaluations.

The most common types of evaluation are:

* Whole of board -- examines the board's skills, behaviour, processes, team outputs.

* Committee -- reviews the committee's purpose, skill sets, processes and achievements.

* Chair -- assesses the individual's board management performance, working relationship with board members and personal qualities.

* Director -- examines the individual directors' understanding of their role, competencies and boardroom performance.

* Chief executive -- reviews the CEO's performance against plan, their competencies and capabilities.

Directors who have undertaken evaluations for many years still question its utility. Their criticisms of the process include:

Evaluations are too long. Some whole-of-board assessments consist of 70 or 80 questions. They take a long time to complete and provide more information than is possible to follow up on. Directors get bored, pay little attention to the detail and often provide routine scores, typically 4 on a 5-point scale.

Individual director evaluations can be worse with each director having to answer 40 or more questions. The personal nature of the feedback makes evaluation more sensitive than whole-of-board evaluation. The potential for unproductive feedback is significant.

Evaluations don't focus on critical issues. Board evaluations are typically based on a best practice model such as the London Stock Exchange's 'Corporate Governance: A Practical Guide'. Chairs often have issues other than those in the model that they want to assess as part of the evaluation. Good evaluations must be able to focus on new and sometimes unique issues. …

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