Evaluation of the board’s performance

Evaluation of the board’s performance

It has now become commonplace for boards to carry out annual board evaluations. A requirement for the board to evaluate its performance is now a key component in nearly every major corporate governance standard. Boards are required to monitor and evaluate their own performance. This review should be a formal process conducted once a year, using an agreed method, against targets set and agreed to by the board in advance.
The King III Code of Governance has stipulated the role of the board with regard to its evaluation and the evaluation of its committees and the individual directors. The evaluation should be performed every year. The board should determine its own role, functions, duties and performance criteria as well as that for directors on the board and board committees to serve as a benchmark for the performance appraisal.
Yearly evaluations should be performed by the chairman or an independent consultant. The results of performance evaluations should identify training needs for directors. An overview of the appraisal process, results and action plans should be disclosed in the integrated report. The nomination for the re-appointment of a director should only occur after the evaluation of the performance and attendance of the director.

It’s important that directors review their own performance and contribution because board evaluations can improve decision-making processes, teamwork and meeting effectiveness. The evaluation process also helps clarify the roles of directors and the chief executive officer and how these roles relate to one another.
Board evaluations should look at the activities, structure and processes of the board. As directors work through this review the directors and the board will be able to see how effectively they are performing their job, individually and as a board, and how well directors work together. Boards that are effective will drive the success, improved performance outcomes and a sustainable strategy of the organisation.
When the board is evaluating its performance it is not the same as evaluating the performance of the organisation. Good organisational performance does not necessarily mean that the board is performing well and therefore cannot, or should not, improve. So it’s not unusual to find that some organisations are successful despite not having a high functioning board. Hence the need for board evaluation to ensure that boards are effective and will steer the business to success.

Most companies in the US carry out board evaluations of some type, covering the whole board, individual directors and committees. These boards have taken action to improve their performance based on the results of their last board review.
Some boards’ evaluations might be perfunctory activities conducted annually to meet listing requirements or pay lip service to best practice governance. Such evaluations will not help in improving board effectiveness. So if the evaluations are not carried out for the right objective, they can end up being counterproductive exercises, which exacerbates the poor performance of the board rather than transforming the poorly performing boards.
It is therefore important that boards understand the advantages and disadvantages of the different types of board reviews, and then properly plan and implement the board’s evaluation which will significantly increase the likelihood of positive outcomes.
The evaluation of the board should follow a process discussed below that will ensure that the results will help in improving the performance of the board, board committees and of individual directors. This process can be modified to suit each organisation.
The first step would be to determine why the board has to undertake the review: what are the objectives of the review.

The main objectives would be to check compliance of the board with various laws and governance standards and then in improving both organisational and board performance. Most board reviews should therefore be aimed at ensuring both conformance and value-adding objectives. Directors should agree with the objectives of the evaluation process to ensure the success of the evaluation process. Clearly identified objectives will enable the board to set specific goals for the evaluation and make decisions about the scope of the review.
The next step will be to determine who will be evaluated. The groups that the board needs to consider are the board as a whole, the board committees, individual directors, the chairperson, and key governance personnel usually the chief executive officer and the company secretary. This process might be costly therefore it’s vital that costs, time and other resources are considered in determining who has to be evaluated.
The third step relates to what will be evaluated: the criteria for the evaluation process. The board should decide whether its main focus is board processes, skills, competencies or boardroom relationships.
The fourth step covers the stakeholders that will be asked in the evaluation process. The sources of information for the evaluation process can be from directors, the CEO, senior executives and other management personnel and employees and in some cases shareholders may also provide some data for the review although the number of sources of information will be dependent on the purpose of the review or the costs and resources available.

The fifth step will be the choice of the techniques to be used in collecting data to be used in the evaluation process. The main methods that can be used for collecting data are interviews, observing board meetings in process to evaluate issues of boardroom dynamics or relationships between individuals and the last technique is analysis of board packs and governance policies. The research techniques to be used need to be adapted to the evaluation objectives and board context.
The sixth step would refer to who conducts the evaluation process. External reviews could be conducted by external parties, mostly specialist consulting firms in corporate governance whereas internal reviews can be done by the directors and the chairperson. Directors can carry out peer reviews. The survey technique and instrument should be agreed and should allow for a transparent process.

The last step would be how the results will be used. The board’s main objective will be to improve governance and board performance. The results have to be communicated to all directors and key governance personnel to ensure that boards improve performance. It is critical that any agreed actions that come out of an evaluation are implemented and monitored and this can be done by ensuring the board agenda includes implementation of the evaluation results.
If boards have to remain relevant and improve performance and effectiveness, they should ensure that performance evaluation becomes an important feature of boards. Board evaluations will help individual directors, the chairman, boards, board committees and the organisation. The evaluation process is an effective team-building, relationship building activity for the board.

Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy, advanced performance management and entrepreneurship. For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062.

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