Have You Assessed How Your Board is Performing?
A board of directors is a crucial part of your company, but have you thought about how to assess their performance? Positions on a board are usually up for re-election every 1-3 years, so it’s important for stakeholders to know how their board is actually performing.
The role of a board is heavily geared towards governance and strategic direction, but that doesn’t mean they’re above the law when it comes to performance management. In this article, we’ll discuss the importance of assessing your board’s performance, how to do it, and explore the benefits of good board performance assessment.
Why Is it Important to Assess Board Performance?
Every company is different when it comes to how their board operates. Some directors hold shares in the company, while others don’t. Some positions are paid, some aren’t. It all really depends on the type of organisation. But the one common theme is that any board, no matter how small or large the organisation, needs accountability.
The performance of individual directors can often be under the spotlight depending on what portfolio they manage. For example, the financial director may be held responsible for pay decisions, but the reality is the whole board makes those calls together That’s why assessing your board’s performance is so important, to understand everyone’s strengths and weaknesses and combine them to become a more effective operation.
Is Board Assessment Compulsory?
In short, yes. However, this depends on the type of organisation again. In Australia, all ASX listed companies are required to have a process in place for evaluating board performance. They must also disclose what those processes are, and whether a performance evaluation took place in a certain reporting period.
However, it’s important to note that the results of a performance assessment do not need to be disclosed or made public. There are differing schools of thought on this, however the presiding one is that disclosure of performance results would do more harm than good. The potential for defamation concerns and possibly inhibiting open discussion about performance appears to outweigh any need for such disclosure.
How to Assess Board Performance
Assessing board performance can be done in a number of ways. As mentioned above, ASX listed companies are required to have an assessment process in place, but the rules aren’t prescriptive about how this should look. Firstly, there needs to be a differentiation between assessing company performance and board performance. Looking at business growth and profits is obviously important, but a board evaluation is not necessarily the time or place.
Rather, it should be about the individuals and how the board performs as a whole. One of the best ways to assess performance could be with 360-degree feedback, which allows for open and honest discussion about what’s working and what could work better. Also, it’s important to remember that while a board evaluation may uncover certain individual weaknesses, that’s not what the process is about. It’s about ensuring the board as a whole are on the same page and working collaboratively towards company goals.
Individual vs Whole Board Assessment
There’s always a lot of discussion about whether to assess individual board members or just the entire board’s function. Since a board makes decisions collectively, it would seem less useful to pinpoint the performances of individuals. Conversely, if you don’t have an understanding of the strengths and weakness sitting around the boardroom table, it can be difficult to drive a company forward with confidence.
Here are some points for each method of assessment.
Assessing the performance of individual board members seems like the right thing to do. Everywhere else in the business, staff members are assessed on their performance, so why not the board? Well, there are a couple of reasons the scenario is different.
Firstly, individual staff members are responsible for their own actions, however individual board members are part of a group decision making process. While they have their say in board meetings, they’re not wholly responsible for the decisions made. In addition, highlighting individual director weaknesses in a public forum could damage the company.
Having said that, a board and in fact all stakeholders should have some idea of who is bringing value to the table, and who isn’t.
Assessing the whole board’s performance makes more sense, because it provides a platform to move forward collectively. Directors vote on key decisions at board level, meaning overwhelmingly the whole board is responsible for their own performance.
On a more personal level, any kind of performance assessment or feedback is intimidating. While directors should have pretty thick skin, highlighting individual weaknesses can lead to fractures at board level, and the group responsible for corporate governance ends up working less cohesively.
Assessment Creates Accountability
One of the main drivers for assessing your board’s performance is to create accountability. Boards are accountable to shareholders and key stakeholders of a company. Therefore, to maintain confidence in a board, stakeholders need to know that performance is regularly being assessed even if they don’t know the ins and outs of the process.
The question remains of course, regarding individual versus collective accountability, but the ideal working environment is where all directors feel accountable to each other, and to stakeholders at the same time. In addition, if your board is a cohesive unit, assessing accountability of the whole board’s performance is much the same as individual performance management. When directors feel truly invested in their role, they will feel a sense of ownership for any performance assessment results of the entire board.
Assessing Board Performance Increases Engagement
One of the major problems facing boards everywhere in the world is engagement. Often, directors sit on the boards of other organisations too, meaning their time is spread thin. Naturally, they will feel more engaged with a board that works well together and has robust processes in place to govern the work they do.
Ultimately, board members will feel more engaged with their role if they’re confident that the whole board is being assessed regularly. It drives positive change, creates a more dynamic environment, and leads to directors feeling more actively involved.