The best boards are akin to high-performing executive teams. As leadership entities, boards are overseeing organizations that have more challenges than ever. The optimal board can help management teams navigate a changing business landscape and turn obstacles into opportunity. But that optimal board is a rarity, and it does not exist by happenstance. Fostering a nimble, effective, and efficient working group of directors requires several factors: a strong set of leaders; forward-thinking, collaborative, and action-oriented individuals; commitment to near- and long-term improvements; and the proper coaching, resources, and tools.
The basic requirement: an annual board assessment
For public companies, the Securities and Exchange Commission (SEC) requires an annual board review. It expects comprehensive, transparent board evaluation practices that demonstrate active governance oversight and continuous improvement. While there is no set prescription for what that entails, the basics include:
- Disclosure in the annual proxy statement of governance practices and board evaluation processes;
- A detailed reporting on board composition and effectiveness;
- Explanation of director nomination and selection criteria; and
- Disclosure of board diversity and skill matrices.
The Sarbanes-Oxley Act and subsequent SEC rules further emphasize board accountability and effective self assessment, making these evaluations a critical governance requirement for public companies.
Without question, all of the points listed above are valid and yet do not go far enough. Even these “acceptable”, traditional assessments have become insufficient in today’s complex organizational landscape. Merely outlining processes and rating a board as “good”, “okay”, or “poor” provides minimal insight into performance and development opportunities.
Simply stated, if the goal is true board effectiveness, meeting the basic requirement will not deliver the goods.
What is standard is not enough: moving to the annual assessment 2.0
Modern board evaluations must be more nuanced and customized, offering a more strategic focus on board performance and value added to the organization. This may involve analysis of governance, strategic capabilities, operational effectiveness, and individual director contributions.
A comprehensive assessment should provide a detailed roadmap for collective and individual growth, uncovering both potential challenges and opportunities for strategic enhancement. It should be developed with the unique needs of your board in mind, identifying the top two or three priorities that the board should be focusing on in the year to come, and aligned with what the organization and management need most from the board. The design of the assessment process ultimately must align with your board’s goals and objectives.
Finally, in addition to the above-noted deeper questions of leadership, engagement styles, and strategic inclination, a revamped and leading-edge evaluation should be anchored by “what, how, and by whom.” A comprehensive look at multiple aspects of the board’s operation—including assessing the board’s basic practices, its leadership, the individual members, and the annual agenda—covers the “what.”
Driving improvement: getting positive results from your effort
Assuming that you have recognized a need to look deeper and constructed a more detailed review, you now have a comprehensive picture of the board’s performance. But what happens next? This is where the real work takes place. And it is the ideal point at which the required objectivity and coaching acumen of an outside advisor can be augmented by a strong board leader with a growth mindset and the will to enact change.
It is the collaborative follow-through that transforms the assessment from a routine exercise into a strategic development opportunity. Interview and/or survey findings are analyzed and summarized in a comprehensive report along with specific suggestions for enhancing board effectiveness and composition. For peer assessments, key strengths for each director are highlighted to further leverage, and areas of focus to improve individual effectiveness are noted.
The board assessment feedback report is reviewed initially with the board chair and/or nomination/governance chair and chief executive officer (CEO). This is often followed up with a full board discussion, led by the board chair, of findings and conclusions. And the next step is engaging the board in determining how to further its effectiveness and development.
