A board of directors for a company needs to understand its duties, be able determine and evaluate risks, and provide an environment conducive to value creation. To accomplish this, boards must be effective. However, too many are only assessed in the past after an incident has occurred.
Thus, the best boards aren’t too focused on compliance and reporting rather, they work with management to create the future and keep up-to-date. In order to do this, they are examining their governance structures and processes. To this end, they are conducting rigorous evaluations to determine their current state of effectiveness.
The evaluations are able to reveal a range of problems and obstacles. They could range from routine complaints, such as meeting length or agenda composition, to more complicated challenges such as the effectiveness of the board in strategic decision-making or gaps in knowledge and abilities, or director succession plans for executive and directors. In most cases, these evaluations involve a mix of self-evaluations by directors and the board in general and third-party facilitation.
The most successful evaluations, whether conducted by the board or by independent consultants hired for their neutral expertise and perspective are holistic and cover every aspect of a successful board’s structure, processes and people. They also include one-on-one interviews with directors to gather important, precise, sensitive and candid feedback that may not be obtained by questionnaires on their own. In addition, they take on the form of concrete recommendations that directors are required to implement within a reasonable timeframe.