Wednesday August 27, 2014

Is Your Board Aligned?

A vast majority, 92 percent, of boards perform full board evaluations, finds preliminary data from the 2012 NACD Public Company Governance Survey.

In my last post, I shared three questions every board should ask itself when conducting an evaluation: “Are we independent?” “Do we have chemistry?” and “Do we have the right team?”

Now, let’s see how boards are finding the answers.

Preliminary data from the 2012 NACD Public Company Governance Survey to be released this fall shows:

  • 92 percent of boards conduct full board evaluations.
  • 83 percent of boards conduct committee evaluations.
  • 48 percent of boards conduct individual director evaluations.
    • Of those individual evaluations:
    • 56 percent are self-evaluation.
    • 51 percent are peer evaluation.
    • 31 percent are evaluation by the governance committee.
  • 12 percent of boards allow management to evaluate them as part of a 360° review.
Steven R. Walker

What Do the Numbers Tell Us?
Clearly the vast majority of companies are conducting board evaluations of some type. Is this the result of regulation or a commitment to good governance? Some companies are required to perform evaluations by stock exchange mandate. Others have been influenced by the 2009 Securities and Exchange Commission (SEC) rule on proxy disclosure enhancements, which required boards to expand disclosures with regard to directors’ individual skill sets, diversity and overall board composition.

While meeting regulatory requirements may be part of the motivation behind board evaluations, in our experience of facilitating evaluations, we’ve found that the primary driver is a desire to build a high-performing board, well-suited to anticipate, meet and overcome the challenges ahead. Increasingly, boards are moving away from the “check-the-box” mentality and utilizing evaluations as a tool to ensure the board is aligned with the company’s long-term strategy.

As noted above, almost half of our survey respondents conduct individual director evaluations. While self- and peer-evaluations continue to be the thorniest of the bunch, we’ve found they tend to yield the most fruitful results.

Now is the time to look at your board’s evaluation processes. When was the last time your board examined its composition and performance? Do you approach evaluations as a pro forma exercise, which can minimize insights, or are you taking an honest look at whether your board’s practices and composition are optimized to meet the company’s long-term goals?

Steven R. Walker is NACD’s general counsel, secretary and director of Board Advisory Services.

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