How to conduct a board evaluation

What is a board evaluation?

In Australia, a board evaluation or board review usually means a review of the performance of the board, its committees, and the individual directors. This is not to confuse it with a ‘governance review’ or ‘governance evaluation’ which encompasses a more comprehensive review of the organisation’s governance structure, including the board. This is important to consider as different parts of the world—and different people—have different understandings of what a board evaluation encompasses. For example, in the UK, ‘performance’ generally relates to a more comprehensive view of the board as it sits within and interacts with the corporate governance framework of the organisation, rather than only assessing the performance of the board and its individual directors.

For the purpose of this article, we will adopt the Australian understanding of board evaluation as: a review of the performance of the board, its committees, and the individual directors/board members.

Approaching the board evaluation

Your board’s answer(s) to the first question will inform the other aspects of the evaluation process. 

Whether you are conducting the evaluation internally or engaging an external facilitator, you always need to start with the end in mind; being clear and united on the objective(s) from the board evaluation.

Considerations for externally facilitated or internally facilitated evaluations

In Australia, the ASX Corporate Governance Principles and Recommendations recommend, for listed entities, an annual evaluation (preferably) and to periodically engage an external facilitator to conduct the performance review. 

This leaves it up to the board to determine when to engage an external facilitator or if an internal evaluation is sufficient. Again, the objective(s) of the evaluation will provide guidance on whether there is value from using an external facilitator. 

Finding the right external facilitator is important to ensure your desired outcomes of the review are met, the process is conducted well, and that the results of the evaluation support meeting the overall objective of the evaluation. 

Selecting the right practitioner is so important that, in the UK, the Chartered Governance Institute UK & Ireland (CGIUKI) have released guidance documents for practitioners of board evaluations and for boards engaging external practitioners to ensure a high standard and well-run evaluation is conducted. The CGIUKI also provide accreditation for board performance reviewers. The UK have a heightened need for practitioner standards as it’s mandated that listed entities use an external facilitator for its board evaluation every three years. If you’re based elsewhere, these documents may help you in the selection and engagement of an external board evaluation facilitator.

Traps to avoid / risks to consider

No benchmark to measure against

Many boards approach board performance evaluations to improve their performance. However, many boards haven’t taken the time to articulate what ‘performance’ means in their context. Additionally, many board members are also not clear of the expectations placed on them as a board member. This can lead to negative evaluation outcomes that can upset and impact board performance going forward. If board members have no clear expectations to begin with—about what they are meant to do and what the board is meant to do—it’s difficult to properly assess performance. 

For example, board member performance for a not-for-profit board may include the requirement that each board member raise $5,000 per year as part of their role. Or, performance on another board may be that every board member is required to serve on at least on board committee.

Make sure all board members are clear on the expectations placed on them when it comes to their board service and ensure the board as a whole understands its expectations. This provides a benchmark against which to measure performance so that the evaluation results won’t be dismissed with ‘I didn’t know’ and ‘No one told me’ excuses.

A board charter and position descriptions for board members are simple tools that a board can implement to clearly communicate expectations. A thorough induction program provides an avenue to communicate the purpose of the board and the expectations of it and individual board members.

Feedback is given direct to board members

If a board evaluation includes 360 reviews of each board member, what is done with the direct feedback must be considered carefully. Anonymised feedback about your performance on a board may be easy for you to determine who may have made certain comments about you. If these are favourable, that’s a good thing. But if the feedback is critical or perceived as unfavourable, it can cause internal issues amongst board members. 

It's important to determine whether board members receive verbatim feedback or a summary of feedback gained through the evaluation process. It’s helpful for the chair (for internal reviews) or external facilitator to discuss the evaluation results with each director to help ensure a positive outcome to the evaluation. This is where engaging a suitably experienced practitioner for in-depth board evaluations will be of value.

Careful consideration must be made of who is being asked what and about whom, and the degree of feedback and who delivers it to each board member. Ensure the interpersonal dynamics of the board evaluation are considered, and the fact that board members are people too. 

Waiting once a year to raise a performance issue

The chair needs to be attuned and responsive to performance issues as they arise. The board evaluation process must be used as a positive tool to build board capability and value, not as a stick to beat down underperforming or troublesome board members. This will undermine this and subsequent board evaluations.  

It’s worthwhile running a quick check in at the end of each meeting, during an in-camera session, as to how the board meeting was (from board pack to individual contributions) to enable any issues to be raised as they emerge. Having a board buddy or mentor program can provide new board members with an avenue to check in about any concerns that they may not be ready to share publicly. Further to this, being an approachable chair invites the board members to reach out to you if they have a concern about any aspect of board and board member performance or behaviour so that it can be addressed immediately.  

By approaching your board evaluation using the framework above, your board will be able to conduct an effective and efficient evaluation that improves your Board’s individual and collective performance, contribution, and value. 

References

GC Kiel, GJ Nicholson & MA Barlcay 2005, Board, Director and CEO Evaluation, McGraw-Hill, Sydney. Cited in: GC Kiel, GJ Nicholson, JA Tunny & J Beck 2009, Directors at Work: A Practical Guide for Boards, Thomson Reuters, Sydney.