What is board evaluation and why is it important for your business?

A competent, effective and engaged board of directors is an essential part of any successful business. Boards set agendas, provide direction and ensure good governance is followed.

But how do you ensure that a board is working as effectively as possible? A periodic review is a great starting point; however this is not about passing or failing a board (either collectively or as individuals) but making time to reflect on what could be done better. The review should use a combination of quantitative and qualitative indicators with the intention of effecting continuous improvement in the operation of the board.

A good board evaluation process guards against complacency reflects best practice for governance and in some cases may even be mandated, as is the cased for listed businesses.

What are you looking for?

Once you have decided to conduct your board review, what are the key factors you need to investigate?

Firstly assess whether your board has the right mix of skills and experience, and whether the members are suitably engaged in the business. You should also review what kind of interaction they have – it is important to remember that board members should be involved at an oversight level, not in a management role.

Leadership is the second factor on the list. Boards need good leadership skills. Does your board draw out different perspectives while keeping meetings focused? Do they work well as team, reaching consensus and making decisions in a timely manner? Do they work well with your CEO, demonstrating ‘constructive tension’, challenging and rewarding the executive team in equal measure?

Boards that do the above add real value to your business. There is a huge variety of approaches to board evaluation: surveys, one-to-one interviews with board members and other colleagues, independent evaluators, focus groups; to name just a few. It is important that you get value for your time. If you are aiming for improvement, increments are acceptable – you don’t need to go straight for perfection on your first attempt.

What will you find?

So what are you likely to find out? The two top issues that arise in most board evaluations are CEO succession planning and the board’s engagement in strategy. Surveys have shown that less than half of boards were rated as ‘effective’ or ‘highly effective’ at succession planning.

There are some clear action points for any board wrestling with this issue, such as having an emergency plan in place for succession, and reviewing those plans every year or whenever there is a change in management and leadership within the business.

Are you a watchdog or a sounding board?

There are two distinct roles that need to be played by directors. Sometimes a board will look to balance different individuals in these roles, but the best directors play both. The ‘watchdog’ will focus on corporate oversight and challenge assumptions. They are not scared to raise difficult issues! The ‘sounding board’ takes a softer approach, focusing on partnerships with the organisation to achieve goals, providing advice, counsel, guidance and mentoring to the CEO and management team.

Of course we also need to be aware of ‘problem’ directors, those that our evaluation systems flag as exhibiting certain behaviours that are counter-productive to successful businesses. Pitbulls, pet rocks, deer in the headlights, CEO Wannabes, management lapdogs, super-directors, the list of sub-optimal personality types goes on and on. If one of your board members is one of these types, a board evaluation can give you a robust framework to help you deal with this difficult situation.

Where do I start?

There are several ways to conduct a board evaluation and each has its merits. It can be useful to ask for self-assessments, conduct open feedback meetings or for the Chair to conduct reviews away from the usual board agenda. In our view the most effective ways is a properly constructed peer feedback system, interviews can be carried out by the chairman or a third party and directors asked to feedback on the performance of their fellow directors. This approach benefits from a 360 degree view of the director and their attributes and gives the board a clear view of areas of strength and weakness.

A constructive evaluation carried out in this way will undoubtedly add real insight to your governance plans, business direction and leadership strategies. A board evaluation should be a key component of your business planning and is a key ingredient of all high-performing boards.