As the end of the year quickly approaches, many boards are starting to plan for the year ahead. This involves taking an honest look at past performance, considering current priorities, and anticipating upcoming challenges.
Not all directors are up for the task. Per OnBoard’s 2024 Boardroom Insights Survey, around 17% of board directors are ineffective.
Boards must make it a priority to improve director performance in order to maximize effectiveness and impact. It all starts with better board evaluations.
Recently, Donna Hamlin, Ph.D., CEO of BoardWise, joined us for an ATLAS Leadership webinar focused on how to leverage board evaluations to enhance the effectiveness of individual directors and the board as a whole. She discussed how to:
- Objectively assess board and director performance
- Anticipate future challenges through practical futurism
- Improve decision-making by understanding different problem-solving styles
Here, we share key takeaways from this timely session.
Board Evaluations Are a Relatively New Concept
Today, board evaluations are common. But that hasn’t always been the case. In fact, the idea of board evaluations is relatively new.
“It has changed and evolved dramatically,” said Hamlin. “In 2008, we didn’t have board evaluations – until the bank crash. When that happened, everyone got scared. Everyone was thinking, ‘we’ve got to evaluate what the heck we’re doing.”
In light of the financial crisis, boards were under scrutiny to evaluate and change elements like:
- Structure
- Accountability
- Process
- Leadership
- Skills and competencies fit
- Efficiencies
“What happened after the bank crisis was that everyone started looking at board work,” said Hamlin.
The crisis drove widespread demands for accountability and change. For example, regulatory bodies and investor activists successfully imposed more legislation for deeper evaluation and disclosure of governance practices. Today, annual board evaluations of public companies are mandatory in the U.S., The Netherlands, Australia, and Malaysia; they’re recommended for most developed countries. Even nonprofit organizations face pressure to properly evaluate the board in order to secure funding.
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The Role of the Board is Evolving
The business world is rapidly evolving. Boards must evolve to keep pace.
“The definition of boards has become much richer and more questioned,” said Hamlin. “We have to ask, ‘Why are we here? What are we accountable for?’”
The scope of board work has expanded. Today, boards must provide guidance and leadership on a variety of topics, including environmental, social, and governance (ESG) issues, cybersecurity, and climate change, among others.
Effectively addressing these topics often requires adding new subject matter experts. “We have to ask ourselves, ‘Who should be on the board?’” said Hamlin.
We’re also seeing larger boards and more frequent board meetings. In addition, committee work is changing.
“We’re not a board that’s just providing oversight,” said Hamlin. “It’s much more about our accountability to the larger community.”
Boards Take Different Approaches to Evaluation
According to Hamlin, there are “lots of different ways that companies began and are now doing board evaluation.” Two common approaches are:
Personal best
This involves conducting annual evaluations that compare relative progress. In other words, how are we doing now and how does that compare to last year? This is similar to an athlete’s approach to incremental improvement.
Normative best practices
This approach involves conducting the annual evaluation with a common set of indicators, comparing to norms within industry peers or comparable sized companies. “This is a popular way that’s happening right now,” explained Hamlin.
Independent Reviews are a Best Practice
Some boards choose to conduct evaluations internally. But Hamlin advised that independent reviews are best practice.
“It’s difficult to evaluate your board if you’re on the board,” she said.
Independent reviews bring an objective, cost-effective, standards-based approach to evaluations that provides more robust, useful data and solutions to governance improvement.
A no-conflict-of-interest approach is best. This involves a board securing an objective third party to perform evaluations. This third party should not provide consulting services for remediation improvement. However, they can refer to established strategic partners.
Boards Face Significant Challenges
Often, boards aren’t as effective as they could be. This can be due to a number of challenges, including:
- Handling underperforming directors
- Expectations of celebrity directors
- Leveraging the full value of experts as directors on the board
- Understanding differences in thinking
There are Effective Solutions for Overcoming Board Challenges
There are many challenges related to board performance and evaluations. However, there are some effective solutions for overcoming these challenges. Hamlin shared a few of these solutions including:
- Creating a clear framework for duties and expectations before a director joins. That way, everyone is on the same page from the start.
- Integrate standards into all screening for directors. All directors should be subject to the same set of standards.
- Define outcomes for underperformance. What happens when you have an underperforming director?
- Invest in “permanent competency” offering. According to Hamlin, “one of the critical skills of a director is curiosity.” Be sure to provide your directors with coaching, training, and education opportunities so they’re always learning and refreshing their skills and knowledge.
- Consider setting terms for board roles. This is a popular approach in many parts of the world because it allows boards to “keep fresh talent as time goes by.” However, Hamlin cautions against removing a board member “just because they’ve been on the board for a long time.”
There are Two Things Every Director Needs to Do
First, directors must keep up with the rapid pace of change. “Don’t go to sleep at night,” said Hamlin. “Everything changes overnight.”
Board directors must also anticipate the future. “You have to be Yoda,” explained Hamlin. “You have to see the future in a way that your decisions will be contextual. Be a futurist.”
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About The Author
- Adam Wire
- 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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