Board Best Practices Series: The Value in Board Assessments
Turning Ideas into Action through Board Assessments – Evaluating Excellence
“So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself-nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” – Franklin D. Roosevelt, 1933 Inaugural Address
Throughout history, notable speeches, insightful philosophers, and even song writers have challenged leaders to advance when faced with challenges. Rarely is the status quo fully acceptable. Humans strive to improve and to attain new levels of achievement. This call has led armies to victory, scientists to new discoveries, candidates to offices, musicians to halls of fame, and athletes to championships. The commonality that underlies great achievements is the willingness to honestly face one’s circumstances, think openly, and turn ideas into action. This axiom rings true in the boardroom.
Peter Drucker’s quote, “what’s measured improves” is a simple statement with broad implications for leaders and especially corporate boards. We live in an era of unprecedented social and economic change, much of which is driven by innovation and technology. Self and board assessment is an opportunity for advancement. We frequently work with boards and leaders who seek opportunities to promote high achievement in the boardroom. An annual board assessment has proven to be a mainspring process for maximizing board effectiveness.
Frequently, our clients have remarked that most of their past assessment processes have lacked compelling, insightful, and actionable reporting. Simplistic governance cloud surveys are not sufficient. Whether a board is conducting its process internally or utilizing a third-party facilitator, a well designed process is paramount. The hallmarks and outcomes of a well designed process will include:
- 1. action points and plans for future governance needs,
- 2. better understanding of the governance, operational, organizational, and financial risks,
- 3. ability to respond to stakeholders’ demands for stronger governance and transparency into board practices, and
- 4. more effectively fulfilling the board’s responsibilities and participating in the strategic vision for the organization’s future.
Why Should Boards Conduct Assessments?
The first point of consideration is why not. A robust well-designed assessment process will provide enhanced insight and help achieve or maintain governance excellence. Boards are facing increased pressure for accountability from stakeholders. Investors and regulators, in particular, have been reviewing how boards assess performance. Governance scandals of the past twenty years have put a spotlight on corporate governance practices globally. In light of increased scrutiny, pressure for board accountability has increased. Forward thinking boards and board members aren’t merely responding — they are leading.
Internal and external pressures for board assessments:
- The NYSE listing rules require annual board assessments.
- The UK Corporate Governance Code mandates annual board assessments.
- Many regulators and jurisdictions globally require annual board assessments.
- Investors today expect annual board assessments of all public companies.
- A board that commits to a well-designed assessment process will achieve improvement and outperform peers who do not.
- A board signals to all of management and employees that they care about everyone’s performance within the company.
Perspectives on the board’s role and the value of governance have evolved. Governance is now viewed as strategic. Strategic boards are responding and raising the standard of governance excellence. Engaging a useful, annual self-assessment is fundamental to governance excellence. Stakeholders expect it, and disclosure of it evidences the board’s effectiveness and commitment to its role.
Moving Beyond Good Enough to Excellent
Excellence is grounded in self-awareness and commitment to continuous improvement. A highly effective board:
- fosters positive, maturing group-board dynamics
- establishes strong governance practices
- promotes engagement by all board members
- maintains a healthy relationship with management
- ensures focus on mission and strategy
- cultivates a healthy organizational culture
- regularly gauges its effectiveness through robust assessment processes
To move beyond “good governance,” boards must evaluate how to improve their practices beyond checking the box in basic practices. As it relates to the board assessment process, boards should take a holistic approach that evaluates the whole as well as the parts, namely the full board, committees, and individual directors.
- Limiting the scope of the assessment process to only an assessment of the board discounts and overlooks the contributions and fundamental value of the committees and individual directors.
- The effectiveness of a board is also directly dictated by the effectiveness of the chair, so evaluating a chair’s leadership is key to the development of the board.
- Highly effective chairs invite director peer and self-assessment.
- Board and management alignment is critical to organizational success. When appropriate, including an evaluation of the CEO and inviting the participation of key members of management gauges this alignment.
- Management’s insights and candid observations about a board’s functioning and dynamics contribute to the board’s understanding of its own effectiveness.
Navigating when and how this feedback is collected and framed for board discussion augments the success of a process.
Optimizing the Process
As the maxim goes, timing is everything. The board should conduct its annual assessments during a time when directors’ schedules will allow them to provide thoughtful and complete input and when the board can build resultant actions into its work plan and agendas. Other key questions around timing are:
- 1. How much time should directors and other respondents have to complete the questionnaire?
- 2. How much time will analysis and reporting require?
- 3. When should the results be shared and by whom?
Diligent governance leaders must navigate this to ensure that the process is efficient and results in action. A process that allows too much time to pass from directors giving feedback to reviewing results can diminish relevance. A digital questionnaire that guides respondents logically and easily through the assessment is the most efficient option for gathering basic feedback.
You don’t get the right answers if you don’t ask the right questions. The questions should be clearly worded and focused on singular topics. The number and scope of questions must focus on core areas and be comprehensive without being redundant. Including both rated questions and open-ended questions balances quantitative and qualitative inquiry that will enhance reporting. The balance of these factors in substance promotes engagement in the process. For deeper insights, telephonic or in-person interviews may follow the written assessment to add depth and breadth to the process.
Third-Party Facilitators in Board Assessments
When boards first began to conduct self-assessments, the task of managing the process fell most often to general counsel and corporate secretaries. This not only imposed an additional burden, it also had the effect of limiting, if not eliminating, candor in responses. Not only does a third-party facilitator allow for a more transparent assessment process, they also bring expertise in assessments and best governance practices in the design, facilitation, and reporting.
Benefits of Engaging an Experienced Third-Party Facilitator
- Knowledge of governance trends and best practices
- Preservation of board resources for other governance tasks
- Enhanced candor due to assurance of director anonymity
- Timely and accurate collection, compilation, and distribution of results
- Objectivity and integrity in the analysis of results
- Ability to benchmark against past performance and peers
- Facilitation of open discussion and committing to action
- Preclusion of the appearance of bias, manipulation, or favoritism
- Independent, objective, expert perspective from a facilitator whose primary role is the board assessment
Diligent Board Assessments Lead Towards Excellence
Whether you sit on the board of a multi-national corporation or local non-profit, as a diligent board member, you take your responsibility and duty seriously. Promoting an annual assessment and thoughtfully engaging in the process helps every committed director more effectively fulfill their roles.
Let’s be clear — a survey alone is not an assessment. Governance leaders who work diligently to optimize the effectiveness of their assessment process should know the hallmarks of a quality board assessment:
- 1. A process customized to advance your board’s governance goals.
- 2. A process structured to encourage candor and openness and maintain directors’ anonymity in the interest of eliciting actionable insight.
- 3. A process designed to drive strategic discussions by providing analysis and action points, which objectively reflect the input of all of the respondents.
At CBE, our Board Excellence AssessmentTM process emphasizes meaningful and excellence-driven board practices at every step. Our mission as a company derives from our belief that increased self-awareness drives learning, which drives improvement. We see governance not only as a tool or structure, but as a commitment to action and opportunity. An assessment process that enables director growth and development is the real mission of a CBE board assessment. This is where the real value of a well designed and administered assessment lies.
Call us at 800.645.1976 with governance questions about: