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Just because the board contains talented, committed and skilled individuals doesn't automatically mean it will be effective. The right mix of skills, organisation and leadership from the chair is crucial, as well as having clear guidelines and measures of performance. Measure should be at corporate, board and individual director level, and include non-financial and financial measures in the approach.
Before evaluating, organisations will need to decide:
- who will do the evaluation - the board itself or external consultants
- who is being evaluated - board alone or the committees too
- what is to be covered - operational and/or strategy
- how is it to be done - with interviews or questionnaires, or a mixed approach, and
- what is done with the information collected - for public disclosure or to remain confidential.
Best Practice Suggests:
- The use of sub-committees as they give added attention and specialist focused review that might not be otherwise available at Board. (see template at appendices)
- Individual evaluation of directors should consider their individual contributions and time commitment to the role.
- The chairman should consider the strengths and weaknesses of the board using the results of the evaluations.
- And non-executive directors should be responsible for the evaluating the chairman of the board and the executive directors.
The board of directors should state in the annual report how they undertake the process of evaluating the performance of the board's committees and that of individuals' performance.
Others measures could be:
- Are results/performance comparable with competitors?
- Are board decisions regularly reviewed to measure the impact of decisions taken?
- Do all directors contribute effectively?
- Is there effective leadership from the chair?
Evaluation should be rigorous and not just a 'tick box' exercise, and should take place annually.
Evaluation of Non-Executive Directors:
Like the board in general, non-executive directors should expect their performance to be evaluated on a regular basis. Criteria used to evaluate performance include:
- preparation and attendance at board meetings
- time spent understanding the organisation's business outside of the boardroom
- quality and value of boardroom contributions
- contributions to risk assessment and strategic development
- readiness to challenge and probe any assumptions
- are areas of concern followed up
- behaviour and performance gain board respect
- current awareness and keeping up to date and
- the expressing of views and listening to others.
See www.nao.org.uk for further information - The audit committee self assessment checklist
Skills & Training
All directors should regularly update and refresh their skills and knowledge. A training programme should be appropriate to directors' current skills and experience and the requirements of the Board position held. Regular skills audits are an established means of establishing whether the board has the requisite skills and experience. Such an audit should also review what resources a company has made available to train its directors. If nothing is in place, or provision is inadequate, then this should be of concern to both prospective and current directors.
Overseeing the implementation of a proper training programme is a responsibility that could be properly assigned to an experienced non-executive director. Once needs are established, a rolling programme should be devised for each director, which may include external seminars, internal training, and recommended reading of specific articles or publications. The programme should be reviewed at regular intervals in tandem with skills audits, to ensure the changing needs are met.
Where a significant skills gap exists the Board may consider co-option and/or appointment of a specialist advisor to address collective gaps.
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