Board Evaluations Aren't Longstanding Practice

Before the 2008 financial collapse and Great Recession that followed, board evaluations, such as they were, were brief, informal, and incomplete. The events of 2008 forced boards to rethink their approaches and take board evaluations more seriously. Now, evaluations are more purposeful and thorough.

Boards Must Keep Up With the Times

From surges in activism to higher diversity expectations and beyond, boards can’t operate the way they always have and expect to remain effective and successful. They must spot trends accurately, and react accordingly, regardless of their knowledge about or comfort with that trend.

Don't Just Change for the Sake of Change

As new technologies evolve, boards shouldn’t just blindly dive into the deep end. They should learn about the benefits and risks associated with any new technology, consider long-term impacts of their decisions, collaborate with each other and with organization management where appropriate, and review governance best practices.

Webinar Recap: Donna Hamlin, Ph.D., founder and CEO of BoardWise, shares guidance and strategies for evaluating your board and planning for the coming year.

Design Lines

The final quarter of the year is upon us. That means many boards have already started planning for the year ahead.

Developing an annual plan requires a careful balance of analyzing past performance, maintaining present-day priorities, and understanding what challenges may lie ahead in the coming year. 

Not everyone is cut out for the challenge. As Donna Hamlin, Ph.D., founder and CEO of BoardWise, explained, there are two things you have to do to be a good director. “You’re not allowed to sleep, because everything changes overnight. Also, you have to be Yoda. You have to understand the context of the future and what things are changing in a longer-term span.”

Recently, Hamlin joined us for an ATLAS Leadership Series webinar focused on board evaluation and annual planning for 2024 and beyond. During the session, Hamlin shared how to: 

  • Objectively evaluate board and director performance and identify opportunities for improvement
  • Apply practical futurism to “see around corners” – despite the rapid pace of change
  • Optimize collaborative decision-making and planning by understanding the differences between problem-solving personality types

Here, we share highlights from the session. 

Board Evaluations are a Relatively New Practice

The concept of boards isn’t new. Today, there’s only one country in the world that doesn’t require boards: Finland. 

However, the concept of board evaluations is a fairly new one. The adoption of this concept was driven, in large part, by the bank collapse and Great Recession 15 years ago. 

Prior to the financial collapse, there were 5 common philosophies regarding governance.

  1. Checks and balances: Distribute power to avoid abuse
  2. Behavior: Define clear ethics, moral rules, and hire with integrity
  3. Market discipline: Market pressures improve governance
  4. Rules and processes: Apply strong rules and process and monitor
  5. Market ordering: Fix the overall system within a market sector and governance will improve (for example, overhaul the banks)

Before the banking crisis, there was a focus on checks and balances and market discipline. “Everybody believed those things would make the difference,” said Hamlin. 

Then, the crash happened and the focus started to shift to address behavior, market ordering, and rules instead. “This shifted a lot of what we do as board directors,” said Hamlin.

The collapse shed light on a clear need to make changes. As such, boards across the world started to make changes to factors including:

  • Structure
  • Accountability
  • Process
  • Leadership
  • Skills and competencies fit
  • Efficiences 

“Everybody was trying what I call experiments,” said Hamlin. “Experiments aren’t bad, but it takes a good five years to see if the experiments actually carry any value at the end of the day.”

According to Hamlin, this is when board evaluations started to take a much more serious tone. 

Board Evaluations Have Evolved

In the early days of board evaluations, boards took a number of different, ineffective approaches. While some boards ignored the evaluation process altogether, others merely spent five minutes at the end of a meeting patting each other on the back for a job well done.

Today, most boards have moved on to a “personal best” approach. This approach requires boards to take an honest look at where they are today – and what they can do to be even better. 

According to Hamlin, boards can do this by looking at themselves – as well as examining best practices around the globe. “We can see if we can borrow from what others are learning and apply it for ourselves,” she said.

Hamlin explained that it’s best practice is to leverage an independent third party to conduct your board review. “You get the objective view and you can borrow from what other people are learning around the world to try something that’ll improve or at least test our own direction going forward.” 

There are a number of topics considered in an external board evaluation. A few of those factors include:

  • Board access to information
  • Board composition
  • Board meeting quality and effectiveness
  • Board accountability
  • Personal demographics

“Looking at each of these factors is important,” she said.

Trendspotting is a Routine Part of Directors’ Jobs

In the business world, change is constant. As Hamlin put it, board members must “be like Yoda.” They must keep a pulse on the forces at play – and understand the potential impact of these forces.

For board members, “trendspotting has become a routine part of the job.”

Hamlin reviewed several of the key forces at play, including: 

  • Meeting expectations of sophisticated shareholders and stakeholders with more interactions with boards and management
  • Slower to market
  • Stricter requirements for access to institutional investor funds
  • Disclosure and fuller formal transparency
  • Data management standards for ESG
  • Tighter regulations and reinforcement
  • Stretching of governance accountability 

“We have to be students on topics we never thought we’d need to know,” said Hamlin.

Hamlin also covered some recent trends directors need to address, including:

  • Surges in activism: 2022 had the highest record for activism in history.
  • Risk management: Areas for coverage in risk management are broadening.
  • Board-management relationship: Directors and executives must come together to define their respective roles and responsibilities. 
  • Diversity: Expectations for diversity are growing. 

The role of boards is expanding. Boards must take an honest look at whether they have the right people in the right seats. 

Time commitments are also increasing. In the past, boards met an average of six times per year. Now, most meet between eight and 12 times per year. Finally, there are more committees created to address the needs of the company. 

As Hamlin put it, “We’re going through an existential period and asking, ‘What is the purpose of the board today compared to what it used to be? Who should be on our board going forward? Is it time to refresh? How transparent do we dare be?’”

There are New Practices for Boards to Consider

It’s a challenging time for boards. Hamlin recommended 4 new practices boards should consider.

  1. Learn: The world is always changing. Boards must make a consistent commitment to learning. One way to incorporate learning is to create and offer director education sessions during dinner the evening before board meetings or at breakfast before meetings begin. “You’ve got to put on your student hat and look at education, education, education,” said Hamlin. 
  2. Board firesight: Boards must “be like Yoda.” They must consider long-term contributors to business success, as well as the best ways to address governance trends, forces, and changes ahead.
  3. Collaborate: Assign directors as mentors for executives in management to enhance working relationships. “That makes a huge improvement in communication and problem solving,” Hamlin said. 
  4. Look around: Review best practices in governance globally to consider for adoption. 

Hamlin also explained that adaptability is key. “The organizations that are the most adaptable are the ones that are going to win in the industry,” she said. 

Diversity Boosts Board Performance

There’s plenty of research to prove the impact of diversity on business performance. For example, 3,000 of the largest publicly traded companies in the U.S. show causative links between inclusion practices and better innovation of products and services. Diversity is also linked with improvements in financial performance. 

However, much of diversity research focuses on gender or ethnicity. Hamlin believes we must also pay attention to diversity of skills, qualifications, experiences, and thinking styles. 

“We know from earlier work that the style of thinking changes the decisions that are made, as well as the creativity of problem-solving.” 

Hamlin shared the following quote from Justin Trudeau, Prime Minister of Canada: “Diversity is a fact; inclusion is a choice.”

She went on to say, “He’s right, but I’d like to suggest a friendly amendment. Diversity is a fact; inclusion is a competency. It’s a skill. If we don’t build that skill, we don’t leverage diversity in the right way.” 

Great board members ask great questions. Are you looking to improve the quality of the questions you ask – and when you ask them? Then save your seat for The Art of Asking Questions in the Boardroom, featuring Lyn McDonnell, president of The Accountability Group and author of The Art of Asking Questions as a Director, a key chapter in “The Handbook for Board Governance.” 

 

Don’t Overlook Risks

Technology has the potential to deliver big benefits to nonprofits. However, it’s important to remember there are also risks. Graham advises nonprofits to consider the following questions:

  • What are the risks associated with adopting this technology?
  • What are the risks of not adopting it?
  • How will you mitigate risks? 

While there are risks of adopting a new solution, there are also risks of taking no action. “Doing nothing has its whole set of costs and benefits as well,” she said.

 

Tailor Your Pitch to Your Audience

Once you’ve determined your challenges and found a solution that fits your needs, it’s time to make a pitch to those within your organization who hold decision-making power.

Remember: a pitch shouldn’t be “one size fits all.” Rather, Graham advised attendees to “Differentiate the message to different audiences. Each has different priorities. Each needs different things.” 

With that in mind, Graham shared these steps for creating a pitch tailored to your audience: 

  • Clearly state your problem and its impact
  • Capture top pain points and connect it to your goals
  • Explain benefits rather than features
  • Show budget and ROI calculations
  • Detail steps to choosing this solution
  • Describe the implementation project
  • Include a call to action

 

Technology is a Common Gap on Nonprofit Boards

Often, nonprofit board members are recruited for their financial capacity or connections. In addition, some are recruited for the backgrounds in a specific area of need – such as marketing or human resources. 

While technology is increasing in importance across all sectors, Graham notes a “huge lack of technology skill among nonprofit boards.” “I’m not seeing board members recruited for their technology skills.”

Technology plays a growing role in the way nonprofits run. As such, it must be on board members’ radar. “Boards have a huge responsibility to be looking at technology risk and ethics,” Graham said. “That’s part of the director’s responsibility to the organization.”

Boards should focus their recruitment efforts on finding potential directors with technology experience. “I think that’s a huge opportunity that can help organizations get to a higher level of maturity, faster,” she concluded.

Are you starting to learn more about board evaluation and annual planning strategies that will help set your board up for success in the year ahead? Save your spot for our next ATLAS Leadership webinar, Navigating the Future, with Dr. Donna Hamlin, CEO and Founder at BoardWise.