Board Evaluation Flashcards
THE COMPANY SECRETARY AS BOARD CONSULTANT
Who is responsible for the board evaluation?
What does a skilful board consultant look like according to Block?
What are the 3 primary goals of consulting?
Chair has accountability for a successful board evaluation, cosec has responsibility for delivering board evaluation in practice (cosec is an internal board consultant)
one who takes on the role as an equal collaborator, such that the 3 primary goals of consulting, either internally or externally to one’s organisation, are to:
(1) establish a collaborative relationship
(2) solve problems so that they stay solved
(3) ensure attention is given to both the technical problem and the client relationships
THE COMPANY SECRETARY AS BOARD CONSULTANT
What are the 5 phases that a consultant, and therefore a company secretary in their role as board evaluator, will need to negotiate?
Board evaluations seek to identify what?
When embraced positively, what advantages can board evaluations bring? (3)
Phase 1 = entry and contracting (set appropriate role expectations and tone e.g., negotiating what exactly the chair wants from the board evaluation; dealing with potential concerns about confidentiality)
Phase 2 = discovery and dialogue
Phase 3 = feedback and the decision to act
Phase 4 = engagement and implementation
Phase 5 = extension, recycle or termination
identify poor performance, lack of fit in any one director, and an analysis of board ‘gaps’ more generally
(1) can create significant advantage in interaction between the existing members
(2) help identify areas where the board composition may benefit from additional members
(3) act as an opportunity to reinforce the reasons why each of the directors were appointed and what expertise they bring to discussions
THE CURRENT LANDSCAPE OF BOARD EVALUATION - EVOLVING CORPORATE CODES
What does the 2018 UK Corporate Governance Code say on board evaluations? (1 Principle, 2 Provisions)
Principle L = Annual evaluation of the board should consider its composition, diversity and how effectively members work together to achieve objectives. Individual evaluation should demonstrate whether each director continues to contribute effectively.
Provision 21 = There should be a formal and rigorous annual evaluation of the performance of the board, its committees, the chair and individual directors. The chair should consider having a regular externally facilitated board evaluation. In FTSE 350 companies this should happen at least every 3 years.
Provision 22 = The chair should act on the results of the evaluation by recognising the strengths and addressing any weaknesses of the board. Each director should engage with the process and take appropriate action when development needs have been identified.
THE CURRENT LANDSCAPE OF BOARD EVALUATION - ORGANISATIONAL USE OF BOARD EVALUATION
Why has the UK take-up of board evaluation practice been somewhat slow, superficial and sensitive? (4)
Why are more companies beginning to complete evaluations, both internally and externally driven?
Providers are beginning to meet the demand, but what is the problem?
Aside from good governance, what else may provide further reasoning for undergoing a board evaluation process?
Barriers to an effective board evaluation being undertaken include:
(1) directors remain either unprepared or unconvinced of the benefits gained from evaluation
(2) they are conscious of the difficulties concerning independent judgment and objectivity
(3) there are worries about the transparency and clarity of process
(4) personal bias and existing sensitivities exist within the board
due to organisational scandals and governance code requirements
they currently follow no externally recognised benchmarks of quality
the growing interest of shareholders and investors in the results of board evaluation may provide a further reason for undergoing the process
THE CURRENT LANDSCAPE OF BOARD EVALUATION - BOARD EVALUATION PROVIDERS
What are the 4 types of external providers of board evaluations?
What disclosures must be made regarding an external evaluator? (2)
The FRC’s 2018 Guidance on Board Effectiveness provides some useful direction on what to take into account when selecting an external evaluator. What does this include?
(1) independent consultancies, = Boardroom Review
(2) search firms = Hanson Green
(3) auditors = KPMG
(4) governing bodies = IOD and CGIUKI
(i) Provision 21 = The external evaluator should be identified in the annual report and a statement made about any other connection it has with the company or individual directors
(ii) qualification and remuneration should be published in an external provider’s
statement
consider a provider’s method, experience, skills, competencies, references, conflicts of interest, cost, and approach
HOW TO CONDUCT BOARD EVALUATIONS
What are the 7 key process questions according to Kiel and Nicholson’s (2005) board evaluation framework?
(1) what are our objectives? (requires consultancy with key stakeholders, including the chair, and enables the evaluation to be fit for purpose)
(2) who will be evaluated?
(3) What will be evaluated?
(4) who will be asked?
(5) what techniques will be used?
(6) who will do the evaluation?
(7) what will you do with the results?
HOW TO CONDUCT BOARD EVALUATIONS - WHAT ARE THE OBJECTIVES OF THE BOARD EVALUATION?
There are various benefits of board evaluation to the organisation, the board and to individual directors.
What are the benefits of a board evaluation according to Kiel and Nicholson, 2005? (7 headings, 2 examples for each)
What is one general benefit of board evaluation?
(1) Leadership = demonstrates commitment to improvement at an individual level; sets the culture and tone f the organisation
(2) Role clarity =clarifies duties of individual directors; sets a board norm for roles
(3) Teamwork = encourage individual director involvement; develop commitment and sense of ownership
(4) Accountability = improved CG standards; focuses board attention of duties to stakeholders and monitoring the organisation
(5) Decision-making = identifies areas where director skills need development; improves the board’s decision-making ability
(6) Communication = improves board-management relationships; improves stakeholder relationships
(7) Board operations = increases effectiveness of individual contributions; ensures more efficient meetings
it will support the measurement and ongoing improvement of board dynamics
HOW TO CONDUCT BOARD EVALUATIONS - WHAT ARE THE OBJECTIVES OF THE BOARD EVALUATION?
The question ‘what are the objectives of the board evaluation’ will usually be asked in the Phase 1 ‘entry and contracting’ stage.
What may a company secretary encounter?
What should be done to ease anxieties?
a company secretary may encounter some concerns and reservations about the process, even though directors may agree that an evaluation would be useful in principle
provide answers to issues around data management and anonymity, external disclosure and implementation of recommendations
HOW TO CONDUCT BOARD EVALUATIONS - WHO IS TO BE EVALUATED?
What is 1 key choice to be made?
What is the advantage of a board-as-a-whole evaluation?
What is a disadvantage?
What are the 4 groups that may be the subject of evaluation?
whether the board should be evaluated as a group or as individual directors (individual evaluation is more likely is when directors stand for re-election)
Advantage = is excellent as a familiarisation tool for inexperienced boards
Disadvantage = group evaluation may give only limited insight into performance problems
(1) board evaluation = involves assessments of effectiveness, structures, operational/ design processes and cultural dynamics
(2) committee evaluation = similar to the board assessment but at each committee level
(3) board and committee chair evaluations = against board-approved role descriptions and performance indicators
(4) individual director evaluations = either self, peer or key stakeholder assessments against board-approved role descriptions and performance indicators
HOW TO CONDUCT BOARD EVALUATIONS - WHAT WILLL BE EVALUATED?
At a minimum, the evaluation should include what?
What should we evaluate when considering the effectiveness of individual chairs and directors? Leblanc and Lindsay (2010) suggest what 3 criteria?
How will this differ depending on the objective of the evaluation?
some measure of the board’s performance against its agreed mandate and (as evidence suggests) some behavioural factors, but the choice will very much depend on what the evaluation objectives are
(1) Fulfilment of their role description = includes attendance, meeting preparation and participation, understanding of governance role, committee service, etc.
(2) Contribution of specific skills and diverse outlook = directors will have been selected strategically based on a current organisational requirement
(3) Personal attributes = includes level of empathy, humility, ability to ask questions and inquire, ability to advocate appropriately, likelihood of derailment, etc
Simple compliance objective = data around 1 will be collected
Strategy, talent or diversity objective = data around 1 and 2 will be collected
Board dynamics and performance objective = data around 1, 2, and 3 will be collected
HOW TO CONDUCT BOARD EVALUATIONS - WHO WILL BE ASKED TO EVALUATE?
The vast majority of board and director evaluations ask who?
However, who is asked must be driven by what? Name an example.
It will also be important to keep in mind the potential drawbacks of asking specific groups for information. Name an example of why.
Therefore, spending some time doing what, may be useful in developing an appropriate board evaluation process?
Ask the board themselves as the sole sources of information
driven by the evaluation objectives
e.g., if the evaluation is based upon building internal and external reputation, then management or outside parties such as major customers may be asked to provide feedback
e.g., external experts may provide useful benchmarking or best-practice insights, but may not understand company context fully
spending time outlining key stakeholder groups (stakeholder mapping techniques) and aligning to the evaluation objectives
HOW TO CONDUCT BOARD EVALUATIONS - WHAT TECHNIQUES WILL BE USED?
There are a variety of quantitative and qualitative board evaluation techniques that differ in their rigour and the rationale for using them. These include what 4?
The CGIUKI checklist provides an example of the type of document analysis that may be done as part of a board evaluation. Name 5 examples of documents that may be reviewed.
(1) informal open discussions or structured self-evaluation groups
(2) benchmarking against recognised practices and codes of governance
(3) standardised evaluation schemes or questionnaires
(standard benchmarking questionnaires tend to focus on assessing structural elements of board governance)
(4) participant observation and analysis
(often reveal the board dynamics through analysis of what actually occurs rather than what directors think or say occurs)
(A) names and roles of people, (B) organisational chart, (C) previous minutes, (D) list of committee and their terms of reference, (E) key planning documents = business or strategic plans
HOW TO CONDUCT BOARD EVALUATIONS - WHO WILL FACILITATE THE EVALUATION?
Evaluation is most often undertaken internally as a self-evaluation. These evaluations can be undertaken by a variety of stakeholders, including who? (3)
What are the 2 advantages of internal evaluations?
What are the 2 disadvantages?
What are the 2 approaches to the role of external board evaluator?
The choice of who undertakes the board evaluation will be based on a combination of factors and will need to align with the evaluation objectives.
(1) cosec, SID and/or chair could evaluate the board as a whole, board committees and/or directors
(2) NC could evaluate the board as a whole, other board committees and/or directors (as in many banks = Goldman Sachs, HSBC)
(3) Directors could evaluate themselves (and each other by peer review) and/or the board as a whole
Advantages = based on in-depth contextual knowledge and are low cost
Disadvantages = potentially subjective and self-serving = transparency and capability concerns (appointing an independent external evaluator may ensure greater objectivity)
(1) the facilitation of a trusted advisor who provides the board with evidence and information with which to judge itself more objectively
(2) to appoint an expert specialist consultant who is more independent and technically skilled, and who actively appraises the board according to competencies determined between the consultant and the board
HOW TO CONDUCT BOARD EVALUATIONS - WHAT WILLL YOU DO WITH THE RESULTS?
What is reported, and to whom, will depend upon the reasons driving the evaluation in the first place.
If increasing board effectiveness is the original rationale, then findings may be what?
However, if accountability, reputation management and organisational transparency are the main reasons for the evaluation, then information may also be what?
One powerful technique if individual evaluations have been undertaken is for what? Why?
Beyond sharing, any under-performance might be dealt with through what?
What is the disclosure requirement in the 2018 UK CG Code? (Principle J) (4)
be shared with the board for subsequent discussion, with personal feedback being discussed in one-to-ones with individual board members
be shared with external stakeholders, such as shareholders
for the board to have a facilitated discussion about their own feedback (can have a tremendous impact on board cohesiveness and trust as well as awareness of individual differences)
through developmental plans, including mentoring or coaching
Principle J = The annual report should describe… how the board evaluation has been conducted, the nature and extent of an external evaluator’s contact with the board and individual directors, the outcomes and actions taken, and how it has or will influence board composition
BOARD EVALUATION - MOVING TOWARDS BEST PRACTICE
A number of restraining forces are holding back development and may be stopping boards from undertaking evaluation. Name 5.
However, there are also some driving forces that might be most important in moving board evaluations towards better practice in future. Name 6.
The FRC’s Guidance on Board Effectiveness is one particularly useful resource, which, if followed, will help what?
(1) a chair’s ego and defensiveness, (2) the organisational status quo, (3) time, (4) poor perceptions of board evaluation practice and (5) cost
(1) having an enlightened chair, (2) generational changes (younger generations are more used to giving and receiving feedback as a matter of course at work), (3) evolutions in the governance codes, (4) peer pressure, (5) the emergence of good board evaluation practice and (6) stakeholder pressure
help raise standards of practice
