Agenda - Board evaluations: Improvement needed

Monday, 03 April 2017

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    Board evaluations are failing to identify and correct poor performance among individual members, according to a recent study of 187 board directors from listed and private companies.


    Board evaluations are failing to identify and correct poor performance among individual members, according to a recent study of 187 board directors from listed and private companies.

    The study, conducted by consulting firm The Miles Group and Stanford University’s Rock Centre for Corporate Governance, found that only around half (55 per cent) of companies evaluate individual directors, and approximately one-third (36 per cent) believe their company does a very good job of accurately assessing the performance of individual directors.

    Directors responding to the study also expressed fairly significant dissatisfaction with boardroom dynamics at their companies, with only 64 per cent strongly believing their board is open to new points of view. Further, only half strongly believe their board leverages the skills of all board members, and 46 per cent strongly believe their board tolerates dissent.

    While the vast majority (89 per cent) of respondents said their board has the skills and experience necessary to oversee the company, boards are less effective in taking proactive steps to ensure they maintain a proper mix of skills, with group dynamics coming under fire.

    Barely more than half (57 per cent) of directors believe their board is effective in bringing new talent to refresh the board’s capabilities before they become outdated, and only 34 per cent of directors rate their board very positively on planning for director turnover.

    The adequacy of leadership evaluation among many boards was also considered in the survey, with 72 per cent of directors believing their leader is effective in inviting the participation of all directors, while 68 per cent believe they are effective in inviting the participation of new members. However, only 60 per cent believe their lead director “asks the right questions” and only 26 per cent believe they are very effective in giving direct, personal, and constructive feedback to fellow directors.

    Survey evidence also indicates that lack of trust in the boardroom can be a problem. Only 68 per cent of board members say they have a very high level of trust in their fellow directors, and only 63 per cent believe their board very effectively challenges management. Worryingly, 53 per cent believe their fellow directors do not express their honest opinions in the presence of management.

    Writing in the Harvard Business Review, the survey’s authors said: “The evaluation process can be greatly improved by treating the board as a high-performing group of individuals and evaluating its leadership, management, and group dynamics.”

    170 - Gaps in pay and workforce participation between men and women may not reach economic equality until 2186 – another 170 years – according to the World Economic Forum.

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