Board Evaluations: Getting the Conversation Started

The New York Stock Exchange requires all of its listed public companies to conduct some form of board evaluation. Yet many companies continue to just go though the motions on the exercise and fail to glean any real feedback about the make-up and competency level of the board. This tick-the-box mindset will take up valuable time without yielding any valuable returns.

Conducting a thorough and thoughtful board evaluation, however, can provide great insight into the connections among company strategy, board and management roles, board composition and skills, development priorities, and action plans. Going forward, it can provide year-over-year comparisons to track the direction in which the board is moving.

That’s not all. The evaluation process itself can be a great communication tool for the board. It can get at difficult problems bubbling beneath the surface or reveal that some board members are not on the same page about a particular strategy or another member. And it sends a positive message to shareholders that the board is holding itself accountable.

A good evaluation—which can range in formality—will provide a matrix on the varied skill sets of the board. It will also show that a board is lacking in a particular area of expertise. And the assessments provide individual board members and committees with feedback on their performance, which can be used to develop self-improvement plans.

Care should be taken about how the information is collected. Typically, a nominating committee made up of independent directors will oversea the evaluation. They will want to guard against the possibility that the board becomes fractured by one or more members receiving a harsh criticism or a public rebuke. Board members should feel free to speak their minds without fear of retribution.

Once the evaluation is complete, boards can use the information to put in place a plan to secure specific skill sets that have been identified as needed.