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Executive Summary: The need for regular, robust board evaluations is increasing as demands related to board composition and effectiveness evolve
Directors and executive leaders want their boards to be effective—that’s undeniable. But what makes a board not just competent, but a truly high-performing, value-enhancing board? That definition is much more elusive.
At too many companies, effectiveness is only evaluated in the past tense, and sometimes only after something has gone wrong. If the question is “why wasn’t the board effective?,” there can be real reputational or legal culpability.
Instead, boards should focus in the present and future tense: Is the board effective? Does it understand and execute its responsibilities, staying focused on truly strategic items and fostering an environment conducive to value creation? Does it have the right mix of backgrounds, skills, and experiences to thrive? And will it remain effective in the future, given anticipated challenges and opportunities?
As companies face increasingly tricky terrain, answering these questions is critical. In addition to ever-present requirements to increase financial value for owners, other stakeholders and influencers—shareholders, proxy advisors, executives, and board members themselves— are ratcheting up their own demands and are more likely than ever to hold the company and its directors responsible if those demands are not met.
All companies should regularly ask if their board is effective, and most do so through the board’s annual self-evaluation. But when did your board last evaluate its evaluation process? When it comes to board evaluations, one size does not fit all. This paper highlights the changing needs of evaluation stakeholders and offers suggestions on how to make your next board assessment fit for purpose.
