It’s time for your annual board evaluation, but what does a successful board evaluation look like? And why evaluate at all? Let’s take a look.
What does the board of directors do and where do board evaluations come into play?
A board of directors consists of a group of people who have knowledge of the industry in which the company operates. The members have different types of experience and skills to benefit the company’s development and offer different perspectives. The Board’s main purpose is to take responsibility for important decisions that promote the company’s success.
The board performs a major role in a company, so assessing its performance regularly is essential. The effectiveness of the board can be measured against different criteria, including structure, overall dynamics and functioning, strategy governance, financial reporting, and role monitoring.
The board should undertake a formal and rigorous annual evaluation of
UK Corporate Governance Code, Section B
its own performance and that of its Committees and individual directors.
In most countries, it is recommended that board evaluations are undertaken once a year and consist of evaluation questions that are answered by the board members themselves. The evaluations should be ‘formal and rigorous’.
Why are board evaluations necessary?
A company has many stakeholders and shareholders, so transparency is one of the most important reasons for conducting a board evaluation. When the board’s efficiency, commitment, and responsibilities are clear, shareholders can be assured that their investment is safe and that the corporate strategy is followed.
However, the dynamics of a board can be complex. When many demands pull in different directions, it can be difficult to agree on decisions and to follow guidelines.
The purpose of a board evaluation, therefore, is to see what works well in the board and to identify challenges. The intention is for the members to reflect on their work and highlight areas for improvement. The ultimate goal is to plan and improve the management of the company. You should consider a board evaluation as an important investment in the company’s future.
Read more about conducting board evaluations with Netigate
What does a successful board evaluation look like?
You should conduct a board evaluation at least once a year. Set a date for the evaluation and try not to let the introduction of new members control when the board evaluation takes place. A good idea is to plan the evaluation in line with the strategic plan and objectives for the business. That way, you can weave changes and important results from the evaluation into the annual planning.
Below we list some important aspects to ensure a successful board evaluation.
1. Use the same questions every year
When designing the evaluation, it is important to use the same questions over time. This way you can measure the same parameters from one year to another and see if there have been improvements or deteriorations over time.
2. Clarity is key
3. Communicate that the evaluation is mandatory
Board evaluations are a key part of the UK Corporate Governance Code. Therefore, it is important to communicate that participation is important. Make it clear that everyone must participate and answer the questions to get an approved result.
4. Use the result as a benchmark
Many use the results from the survey to compare themselves with different boards in the same industry. Research if there is a specific standard to strive for in your industry.
5. Compile the results and create an action plan
When the results have been analyzed, it is likely that a number of problem areas will have been identified. It is important to design an action plan to improve the work of the board and to increase its commitment to the business goals. Also, weave these changes into the annual planning for the entire company.
6. Communicate your planning
You must publish and communicate the results you receive from your successful board evaluation to both employees and stakeholders, as well as shareholders. Therefore, it is always a good idea to set time aside to clearly communicate the results in a meeting or a presentation. This way, everyone feels involved and understands the meaning of the evaluation.
Create your board evaluation today!
Board evaluations are an essential investment in a company’s future and measure how well a board is performing its duties over time. They also help to ensure that the board’s work is in line with a company’s overall goals and strategy.
Annual board evaluations can also be combined with regular pulse surveys to keep track of how specific initiatives and decisions are impacting the company and its employees.
