There has never been more attention on board evaluations. Company leaders, board members, owners, and other stakeholders all believe that effective board evaluations can lead to improved performance, but traditional check-the-box surveys fall short.
The Council of Institutional Investors Research and Education Fund recently identified seven elements of effective disclosures about board evaluations (click here for a summary). Each of the indicators relates to a choice a company may make about its evaluation process and nudges companies to be more thorough and thoughtful.
We think companies should pay attention. Every two or three years, companies should engage in a high-quality, externally facilitated evaluation process. Vanilla questionnaires with five-point Likert scales satisfy neither boards nor investors; time is better spent working with a skilled facilitator to evaluate what is working well for the board and what is not. In addition to earning credit from investors – particularly large passive holders who seek indicia of strong boards and governance practices – these assessments help companies unlock their board’s full potential.
Better boards are better company assets; investing in them makes sense, especially when doing so strengthens relationships with investors and other stakeholders.
- Boards should retain evaluation facilitators who are expert in corporate governance practices and effective in nuanced conversations about sensitive topics
- The process must be kept confidential so that directors will share real, meaningful feedback; protecting the process with privilege is key
- Feedback by itself is not transformative; processes should be designed to lead to concrete suggestions for short- and medium-term change
Click here to see the full alert.