With greater focus on corporate governance and director accountability, there is an expectation that the performance of boards and individual directors should be regularly reviewed.
Traditional methods of evaluating board performance can often be viewed as simply a ticking the box exercise. The chairperson is responsible for encouraging board members to view the appraisal as an opportunity for continuous improvement and enhancing corporate governance rather than a reward or punishment activity.
The introduction of an appraisal process needs to be handled with sensitivity. There is a possibility that some directors may never have experienced a performance appraisal. Other directors such as those on not-for-profit boards may resent being evaluated for positions which are voluntary. Therefore, it is important to make the process non-threatening eg. begin informally with a chat between the chairperson and individual director, then move to a survey or questionnaire and finally to individual appraisals.
There are a number of questions to ask yourself before starting the board review.
What are the objectives?
The immediate objective is to identify performance gaps and to devise strategies for improving performance. Other long term objectives may include developing team work, better decision making, improving the effectiveness of meetings, gaining greater clarity of roles.
Who will be evaluated?
The entire board, the committees or the individual directors? The board's and committees' charters will be the basis of evaluations. Are they fulfilling their responsibilities? Do these documents need updating to reflect changes in the organisation? The assessment of individual directors should take into consideration the criteria used to select them.
What will be evaluated?
For appraisals of entire boards, the following could be considered: Is the board composition optimal? Are processes adequate and working efficiently? Quality of relations between the board and management? Any issues that the directors are concerned about.
For individual assessments, consider: Do the directors understand the company business and strategy? Do they stay abreast of current issues and trends in the industry? Do they have special expertise from which the board is benefiting? Do they attend all board and committee meetings? Are they well prepared and do they actively contribute? Do they challenge management when necessary? Do they effectively enquire into major performance deficiencies?
How will the evaluation be done?
Appraisals can be done internally or externally. Internal appraisals are generally conducted by the chairperson and may take the form of an informal chat with each individual director, a peer assessment or something more structured.
A number of consultancies offer board review services. The benefits are that the evaluation is more objective and the organisation can make use of the consultancy's expertise in board matters.
There are a growing number of online board review services as well.
To decide which is most appropriate, consider the complexity of the corporate governance issues facing your organisation, the experience of the board and the costs associated with the appraisal.
What evaluation techniques will be used?
There is a range of methods for conducting these reviews. The method chosen usually depends on the size of the board and the issues faced. Qualitative methods are good for delving into issues in depth and will normally take the form of an interview. Quantitative methods are used for benchmarking performance over time and can be measured by surveys.
External consultancies will often begin with a self assessment survey questionnaire, followed by an interview of individual directors and then draft a written report. A combination of these methods may be appropriate.
Should there be ongoing evaluation?
Most boards conduct an annual board review but board and individual director performance should be monitored on an ongoing basis.