Most employees and executives face extensive annual performance reviews and non-stop pressure to perform or pack up. Why don't companies pay closer attention to the performance of its board?
The answer may be simple: it is the reluctance of boards to face up to their members' poor performance. It is one of the most resilient pieces of the old boardroom culture. When you think about the professional and social status of most board directors, the idea of telling them they're doing a crummy job is almost too painful and embarrassing to contemplate. And yet, it's impossible to imagine how any board can function as a high-performance team without finding some way to demand high performance from each of its own board members.
Other reasons why boards have been reluctant to conduct a performance evaluation:
- The board has not identified specific performance targets for the directors or committees
- There is a lack of a strategic framework for long-term value creation, including goals
and benchmarks against which the board can be measured - The board is not functioning properly and effectively
- The CEO has a dominating personality and the board feels powerless to implement changes
- Previous board evaluations were useless and not helpful
- Some board members may feel awkward and embarrassed about an evaluation
- The board may not have the skills and know-how to perform effective evaluations
Fortunately, there is a new trend across the U.S.: more and more boards are assessing the performance of their Board of Directors. Board assessment is quickly becoming recognized as a corporate governance best practice. Check board performance, not just the box. Most companies release the results of a board evaluation in their proxy statements. But shareholders want more than just pro forma results. They want to know that your board assessment
- wasn't just a "check the box" exercise;
- identified risk and strategic opportunities; and
- generated concrete action steps that will lead toward improvement.
The performance issues of board directors have been ignored far too long. Only recently have lead directors, Chairmen, Shareholders, Activists and CEO's stepped up to this awkward but critical issue. An excellent Board assessment helps the Board figure out whether they're doing the right work in the right way. Board assessment is critical. If it's done well, it provides a fantastic opportunity for boards to monitor their own progress and renew their commitment to doing great work.
Most boards are composed of high achievers and continuous improvement is their song. Given a constructive forum in which to express their views and a reasonable expectation that their participation will yield results, they will almost always dig in and suggest ways to make their board better.
A good board assessment can and should be part of building an effective board. Board assessment plays a vital role in two phases of this process: taking stock of the board and assessing quality of engagement.
- TAKING STOCK OF THE BOARD: The natural starting point in board-building is a board assessment. It should consist of an intense and brutally honest diagnosis of how individual directors – and senior executives – perceive the board and how they feel about its working dynamics, the relationship between the board and management, and the board's ability to do productive and value-added work. It's critically important to take a snapshot of where the board stands today. This assessment will help answer two key questions: What are the boards' acknowledged strengths? Where are the opportunities for improvement?
- ASSESSING QUALITY OF ENGAGEMENT: The board should use an intensive diagnostic process to map the work it should be doing and to be explicit about what work is primarily the board's, what is primarily management's responsibility, and what should to be shared by both. This initial board assessment provides the baseline for the annual assessment and generates the feedback the board can use to figure out how closely it has stuck to its original road map and what value resulted from that work. Once a year, the board should ask themselves: "How are we doing?" and make the proper adjustments where necessary.
Basically, there are seven methodologies of board assessments. Each provides a different lens through which to view the board's performance and effectiveness. Using the combination of all seven methodologies has two major benefits: The process is more robust and interesting for participants when more than one of the listed approach is applied. It yields a richer data source which is particularly important if your goal is to continuously enhance your board's effectiveness.
I have narrowed down the most practical and effective approaches / methodologies to board assessments to these:
Surveys, Structured Interviews, Board Focus Groups, Self-Assessments,
Peer Review, Management's Input, Shareholders' Opinion and Shareholders' Activist Groups.
These assessment methods are taking root all across the country and internationally. You will see how these seven assessments, when applied in a smart manner, will immensely help the boards do what has been missing for a long time: create a much more effective and functional board. Without a thorough board assessment and performance evaluation, how can the board improve its overall performance?
You will be receiving the second part to this newsletter #106 in the next 2-3 days.
Written by:
Erich Stolz. 14+ years Board Experience at various companies and industries.
Served on Audit, Compensation, Governance, and Strategy Committees.
He can be reached at 832-372-5419 or
Erich.Stolz@BoardDirector.net
No comments:
Post a Comment