Effective evaluations provide a pathway for boards, committees, and individual directors to objectively assess their strengths and weaknesses and implement plans for continuous improvement.
Yet in a study conducted by the Rock Center for Corporate Governance at Stanford University and The Miles Group, while 66 percent of the directors rated their board as highly effective at accurately assessing CEO performance, the percentage dropped to 36 percent when the question addressed the accuracy of the board’s assessment of the performance of board members.
Only 23 percent rated their boards as very effective at giving direct feedback to fellow directors, and 54 percent said that if they had sole power do to so, they would have one or more of their fellow board members removed. The stakes for companies are too high for boards to be satisfied with these results.
Separating the evaluation process from the renomination decision is emerging as a best practice. The NACD Blue Ribbon Commission Report, Building a Strategic-Asset Board, includes a critical insight: “Most evaluations at the individual director level tend to focus on historical performance and contribution, which does not necessarily equate to strategic fit with the needs of the board and the organization in the future—therefore, decisions to renominate directors should be largely separate from the evaluation process.” The report suggests that the board take a “clean sheet” approach to board composition as it relates to the current and future needs of the company, and consider each individual director’s “fitness for purpose” when renomination decisions are made.
While evaluation results clearly are relevant to the “fitness for purpose” determination, the focus of the evaluation should be to assess and set priorities for continuous improvement. Put simply, a solid evaluation should offer insight into what is working, what needs improvement, and where the board, committees, and individual directors should devote their efforts over the coming year.
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