Board Evaluation – Involve your Management
October 3, 2019
‘Tis the season when most boards are preparing to conduct their required annual evaluation. Recently, EY’s Center for Board Matters published a brief about how Fortune 100 companies are evolving their board evaluations and disclosures. The Society for Corporate Governance referenced the EY study in this week’s Society Huddle, reporting some interesting statistics on company practices in board evaluations and the disclosures on their evaluations to shareholders. For example, 92% of the boards among the Fortune 100 for whom proxy statements were available for 2019 (79 companies) provided board evaluation disclosures in their proxy statements. Furthermore, 39% of those same companies reported the inclusion of individual director self-evaluations in addition to full board and committee evaluations. That percentage represented a significant increase over the 2018 figure of 24%. Clearly, providing directors with individual feedback, or alternatively, feed-forward, about how they are contributing is an emerging best practice.
In addition to survey and interview methods to gather input from directors on how the board and individuals are contributing, there is another group of stakeholders whose input can also be very useful to a board evaluation: the members of the company’s management team who interface with the board. While boards of directors have a primary duty to serve the interests of shareholders, an important stakeholder group with whom a board must work to deliver on that duty is the executive management team. Over the course of the year, directors are exposed to and interact with the CFO, CHRO, major business unit heads, and other C-suite leaders both in full board sessions and in committee work. The quality of those interactions is critical to a board’s ability to do its job and provide a great, mutual opportunity for directors and management team members to align and collaborate. Those contacts enable board members to get to know mission-critical talent and allow management team members to broaden their perspectives and development. Incorporating input from those members of management who interface with the board can be a valuable source of data and insight about board effectiveness.
The EY study of board evaluation practices in 2019 reported that 27% of Fortune 100 boards used or considered using an outside facilitator for their board evaluations. When RHR International works in partnership with boards to conduct evaluations, we routinely survey and interview selected members of the management team who interact with directors on the following questions:
- What is the value that this board needs to contribute to the enterprise’s success at this time, and how well is it delivering that value?
- How effectively are the committees you interact with executing against their charters?
- Does the board focus at the right level to deliver strategic value and respect the boundary between governance and management?
- Does our board demonstrate adequate depth of understanding of our company’s business, strategy, and competitive landscape to deliver high-impact value?
- Are there areas of experience and expertise that our board could add to enhance its ability to advise and guide us?
- Does the trust level and working relationships among board members and management permit fully candid and open dialogue inside and out of committee meetings, and does our CEO support open access and transparency?
- What are the top strengths of your board and what are the board’s opportunities to maximize their contributions toward the success of the enterprise in the future?
Not only does the invitation to offer input delight the participants who are invited, but the answers to these questions often generate invaluable insights and suggestions to enhance board effectiveness. So as you prepare for your board’s next evaluation, consider including input from the management team on whom you and your shareholders depend to execute your mission, vision, and strategy.
