Insights Blog
INTERNATIONAL EXECUTIVE & BOARD SEARCH, STRATEGIC TALENT & MANAGEMENT SOLUTIONS
The topic of diversity is a buzz these days. It's discussed in board rooms about director composition, in human resource teams about employee mix, among teachers about classroom composition and - in all cases - professionals are assessing differing notions about the impact diversity may have on overall performance.
While reactions to board evaluations appear wide-ranging, one thing seems certain: shareholders are demanding that directors sit up and take notice. The truth is that the focus on governance standards is not going away. Instead, it is being placed under hotter, brighter spotlights. Shareholders have the right to expect their boards of directors to scrutinize the ways in which they carry out their responsibilities and to relentlessly seek out ways to improve. Activist shareholders are taking a stand, as they move to become active in boards which do not take this responsibility to heart, and which fail to create sustainable shareholder value. Boards must take evaluation seriously or expect to be realigned by force.
We use a structured approach, evaluating board effectiveness at five increasingly accountable levels.
Level One – Board Essentials: Infrastructure. This level addresses thirteen ‘essentials’, including board structure, processes, composition, information, and committee and board management. Are standard board processes enough to get the job done? Is the mix of experience and backgrounds appropriate? Are board roles and responsibilities clear?
A rush of corporate scandals, corruption and shocking transgressions has resulted in a new business atmosphere – investors, shareholders and creditors have finally had enough. Across the globe, they have banded together in special interest groups and are now insisting on legal regulations and reforms to protect their rights and interests.
Investors and shareholders expect – and demand – a right to ‘pull back the curtain’ and evaluate the governance quality represented by a company. The fundamental value at work here is to create open and consistently accurate information about how a company governs its operation and strategy.
Obviously, openness and disclosure create a huge opportunity for companies to improve. When called upon to conduct board evaluations, however, reactions from boards of directors run the gamut from ludicrous to lofty. We see a continuum here, from the worst to the progressively avant guard.
Some boards pretend to perform evaluations. Others do it half-heartedly. Still others take an aggressive approach that creates huge conflicts of interest. Here are some of the more common types of board evaluations that simply don’t work.
Scofflaw. This type of board is insulted by ‘over-regulation’ and ignores the evaluation process. They take a ‘wait to see if we get caught’ approach.
Boards which take an honest and open approach to evaluations fare better in terms of improving their performance, whether this means making incremental changes or accelerating change over time.
Personal Best. This type of board does an earnest job of evaluating its performance, year after year. It looks at what it can do to improve, based on its own progress and relative only to itself.
