Chapter 12 - Board evaluation

Question 1

Although accountability for a successful board evaluation will ultimately lie with the chair as leader of the board, the responsibility for delivering the board evaluation in practice often lies with who?

Answer 1

Company secretary

The Corporate Secretaries International Association Report (2018): 50% of internal board evaluations were by co-secs

Question 2

Outline some code provisions on board evaluation

Answer 2

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
* Formal and rigorous annual evaluation of the performance of the board, its committees, and individuals
* Chair should consider having a regular externally facilitated board evaluation
* External evaluator should be identified in the annual report
* In FTSE 350 companies – every 3 years

Provision 22
* Chair should act on the results of the evaluation by recognising the strengths and weaknesses of the board
* Each director should engage with the process and take appropriate action when development needs have been identified

Question 3

Outline some board evaluation providers

Answer 3

1. Independent consultancies e.g. Boardroom Review
2. Search firms e.g. Egon Zehnder, Hanson Green
3. Auditors e.g. Deloitte, KPMG, EY and PwC
4. Governing bodies e.g. the IoD and CGIUKI

Question 4

Outline the guidance that the FRC provide in relation to what a chair should consider when choosing an external evaluator

Answer 4

• be mindful of existing commercial relationships in order to ensure independence
• agree with the evaluator the objectives and scope of the evaluation and expected quality and communicate this to the board

Question 5

Outline Kiel and Nicholson’s board evaluation framework i.e. 7 questions

Answer 5

1. What are our objectives?
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?

Question 6

Question 1 of Kiel and Nicholson’s framework is ‘What are our objectives’ - why is this relevant?

Answer 6

This will enable the evaluation to be fit for purpose

Question 7

Question 2 of Kiel and Nicholson’s framework is ‘Who will be evaluated’ - give examples?

Answer 7

• Board
• Committee
• Board and committee chairs
• Individual directors

Question 8

Question 3 of Kiel and Nicholson’s framework is ‘What will be evaluated?’ Structural compliance factors is a good starting point. Leblanc and Lindsay suggest which 3 criteria:

Answer 8

a. Fulfilment of their role description – this will include attendance, meeting preparation, understanding of governance role, committee service, etc
b. **Contribution of specific skills and diverse outlook **– directors will have been selected strategically based on a current organisational requirement
c. Personal attributes – these will include level of empathy, humility, ability to ask questions and inquire, ability to advocate appropriately, likelihood of derailment, etc

Question 9

Question 4 of Kiel and Nicholson’s framework is ‘Who will be asked?’ - what does this entail

Answer 9

Depends on objectives – if the evaluation is based on building internal and external reputation, then management or outside parties such as major customers may be asked to provide feedback

Question 10

Question 5 of Kiel and Nicholson’s framework is ‘What techniques will be used’ Name the variety of quantiative and qualitative techniques

Answer 10

a. Informal open discussions or structured self-evaluation groups
b. Benchmarking against recognised practices and code of governance
c. Standardised evaluation schemes or questionnaires
d. Participant observation and analysis

Question 11

Question 6 of Kiel and Nicholson’s framework is ‘Who will do the evaluation?’

Answer 11

a. Company secretary, chair and/or SID
b. The nomination committee
c. Directors could evaluate themselves via peer reviews

Question 12

Question 7 of Kiel and Nicholson’s framework is ‘What will you do with the results’ - what does this entail

Answer 12

Depends on objectives –
a. if increasing board effectiveness, then findings may be shared first with the chair and then the board as a whole for subsequent discussion
b. May be a requirement to include in annual report

Question 13

What is the current view on board evaluation?

Answer 13

• The current view is mixed – some feel it is box-ticking, others find it useful
• Restraining forces are holding back the development e.g. chair’s ego and defensiveness, the organisational status quo, time, poor perception of board evaluation practice and cost
• Driving forces– enlightened chair, generational changes (younger generations are more used to giving and receiving feedback), evolutions of governance codes and stakeholder pressure
• Shift in appreciation of the need to include board dynamics factors

Question 14

According to the 2018 Corporate Secretaries report, what are the 5 key takeaways for the co-sec?

Answer 14

• Follow best practice guidance
• Use appropriate technology to assist affordability
• ensure the evaluation is concluded with a formal report
• take accountability for the coordination of remedial actions and continuous performance discussions
• challenge the company to report transparently and openly