The ultimate measure of board performance is the organisation’s success, however there are many technical and professional elements that attributes to that success. The inputs to good corporate governance as recommended by King IV and other such prescripts are structural at best, however, they could be a good tool to ensure that at least a structure exist to monitor performance, detect and manage risks of non-performance.
Jeffrey A Sonnefeld, in his September 2002 article in the Harvard Business review, “what makes great boards great”, states that the structural elements like board composition, meeting attendance, equity involvement, members’ skills, average board age, independence, presence of old CEO, board size and board committees are great to have, however, they are not the whole story. Sonnefeld argues that social system of the board is equally important in designing a great board. One of the elements he mentions of the social construct is ‘regular board evaluation’. The article is 22 years old and it found that most boards then, did not perform regular board evaluations.
In recent times, board evaluations have become customary and recommended in corporate governance literature. The King III report on corporate governance recommended a board evaluation to be conducted annually. The Principle 9 of the KING IV report however, recommends for a formal evaluation process to be conducted at least every two years and every alternate year, the governing body to schedule an opportunity for consideration, reflection and discussion of its performance in the board’s workplan. Leading Governance, a digital print on governance states in an article, “great boards carry out a self-assessment review at least annually, and have it externally facilitated every 3 years”.
The decision on how often the evaluation is performed is up to the board itself, however, at least annually some review of the activities of the board needs to be performed internally or externally by an independent reviewer. The frequency will determine the depth of the evaluation. To allow for robust analysis and remediation of results, a rotation between comprehensive independent review and internal self-assessment could be best depending on the organisation. The methodology differs from organisation to organisation depending on the size, complexity, structure of the boards and its committees, etc. The evaluation could include all committees or could be part of a comprehensive organisation-wide governance review.
The question is, why are evaluations so important? Is it a compliance check-box, a tool perhaps to protect the board against taking accountability in a case of failures, or could it truly help steer the business away from disaster? The answer lies in the process itself. It truly depends on what is being assessed and the development and execution of a remediation plan post the evaluation. To simply perform the evaluation, have the report as proof and do nothing with it would make the process a compliance check-box. Further, if we do not comprehensively assess the performance of the board on its three roles of providing strategic direction, monitoring (management against strategic objectives) and advising, then the results and any remediation thereof would be negligible. The evaluation is critical in ensuring the sustainability of organisations by ensuring that the board effectively steers and manages the business for the future. Boards should consider using the service of governance specialist to develop a robust evaluation framework, taking into account the costs and benefits of such a process.
