A board evaluation measures the accountability, transparency, and effectiveness of board members.
A board evaluation is a crucial exercise every company should conduct at least once a year. It holds the board members accountable to stakeholders and shareholders, identifies challenges, and discovers what works well in the board and the company.
A successful board evaluation requires detailed logistics and planning. You can take most of the planning out of the equation by hosting a digital board meeting, using handy and efficient tools like Zoom Integration to allow directors to attend the meeting remotely.
What Is a Board Evaluation?
A board evaluation is a process that measures the accountability, transparency, and effectiveness of board members. It provides a valuable tool for all types of organizations, helping to hold board members accountable and ensure they are dedicated and driven toward effective corporate governance.
An exhaustive board evaluation should examine the following;
- Roles and responsibilities – Measure the extent to which the members successfully fulfill their responsibilities and key roles. Also, determine the extent to which the directors contribute to achieving the company’s objectives.
- Structures and procedures – Determine how well the board and its committees abide by best practices in their structure and procedures.
- Appropriate board behavior – Identify the behavior patterns of individual directors and the culture of the board and committees, and how this supports the effective functioning of the board.
Board Evaluation Process: 5 Steps for Success
Most companies conduct a board evaluation process annually. The basis of a good board evaluation process is often detailed in effective board meetings minutes. The minutes provide insight into the challenges the board tackles, and the progress attained in resolving the challenges. Besides the minutes, clear communication plays a vital role in the success of the board evaluation process.
Consider these 5 steps to plan an effective board evaluation:
1. Outline the Evaluation Process from Start to Finish
Create a detailed program for the board evaluation process. You can use an agenda building tool to make the process easier. The program should include timelines for each item on the program, leaving most of the time open for the evaluation process.
Listing the items on the program creates an expectation for the different talking points and how much time each item will take.
Outlining the process also prevents the board evaluation from being usurped by other less critical agendas.
2. Appoint Evaluation Lead
After laying the groundwork, you need to appoint the evaluation lead. Most companies prefer to use external consulting firms with no ties to the Board of Directors, and bring complete autonomy in examining the appraised parameters and tabulating the results accordingly.
It’s also common for the board secretary to coordinate the evaluation process. Ideally, the decision on who will conduct the evaluation should be made ahead of the meeting.
3. Identify Evaluation Topics
Evaluation topics vary according to the goals of the company and current trends. They typically include the following:
Composition and Leadership
A top priority of the board evaluation involves determining whether the board and its committees have the appropriate composition to address the company’s governance needs now and in the future.
The evaluation should determine if the board has appropriate refreshment mechanisms in place. Does the board make active decisions on re-nominations, or are those decisions written in stone? How much effort does that board put in evaluating directors, and does it provide feedback to the evaluated directors? Are these evaluations considered in the re-nomination decisions?
Agenda and Information
One of the ways to measure the board’s effectiveness is how it focuses and prioritizes matters affecting the company. Does the board come to an agreement on these matters, and does it have the information necessary to promptly make an informed decision?
Culture is a vital evaluation point. It features on almost every board evaluation. It examines whether the board promotes a culture that puts the company’s interests above the interests of the directors. Does the board value informed discussions and diverse views? Is constructive disagreement and debate and timely resolution ingrained in the board’s functioning?
Within this point, you also want to look at how the board and its committees handle conflict and the board’s relationship with its shareholders and key advisors.
Governance Structures and Practices
In this evaluation point, you want to determine if the board utilizes governance structures that support the ability to govern the company effectively and objectively.
4. Ask for Feedback Post-Evaluation
After the evaluation, it’s good practice to collect feedback from the participating board directors to inquire about the process and how to improve it. This feedback can include information not addressed in the evaluation points, which can prove crucial when tabulating the results. You can use voting and approval tools or a secure messenger for directors who want to keep their feedback anonymous.
5. Utilize a Third Party When Applicable
Using third-party consultants for board evaluation is highly recommended. A third-party consultant is particularly important when:
- The board wants to test and improve its existing evaluation process.
- The directors are not forthcoming and transparent with an internal evaluator.
- The board believes an independent third party can objectively bring new perspectives and issues to the board’s attention.
Position Your Board for Success with OnBoard
Conducting a successful board evaluation requires proper preparation and consideration. Depending on the size of the company, getting the directors in the same room simultaneously might prove challenging. OnBoard provides a comprehensive board portal with key features to streamline board evaluation. The features are secure and safe enough to cater to SSG Evaluation Boards.
According to the 2021 Board Effectiveness Survey, companies are increasingly moving to virtual board meetings due to improved collaboration and convenience. Check out the full report for additional emerging trends.
About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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