How do you know which is the best board evaluation for your board? The long-term performance of a company is dependent on many things: product-market fit, competition, operation efficiencies, and more. One, sometimes overlooked, factor is the governance structure and its performance. A well-functioning board can vitalize the way we think and act and point the company in a more profitable direction. A well-functioning board is a valuable asset, so how do you assess the performance of the board? That is the topic of this article.
Why is the demand for board evaluations increasing?
The need for governance evaluations is growing partly due to a more professional approach towards corporate governance among board election committees boards, CEOs, and management teams all the way to individual employees. In this article, we focus on the importance of evaluating board performance.
Companies that are aligned all the way from AGM to employees, perform better. A successful company is built on many synchronized and well-functioning parts and processes. The board is one of them and is built on people with relevant experience for the situation the company is in. At best a multitude of competencies can cover many aspects needed to propel the company. A question that often is raised within the company, is if the board is doing a good job, and in what ways can their work be be improved?
Chances are that you who are reading this have board experience. If so, especially if you have been on several boards, you know some boards work well and provide guidance to the operating core of the company, while other boards with seemingly equally competent people do not perform as well. There can be a multitude of reasons why this can happen, and this article covers the cures instead of the problems.
What is the need for board performance evaluations?
Evaluations are needed to analyze performance and to improve on a current state. This statement also holds true for boards. The evaluation can cover a multitude of issues. From pure administration, if the material is correct and sent out in good time before meetings, to the composition of the board; and the skills of the chairman running the meetings. By evaluating these critical issues, the board can systematically understand their strengths and weaknesses, while also finding creative and reflective ways to improve.
How often should a board evaluation occur?
The natural frequency for board evaluations occurs on an annual basis, to provide documentation for the Board nomination committee and for the board itself. A rule of thumb is to do the evaluation 3 months before the annual general meeting. However, several boards want to become a high-performing team, and therefore engage in continuous evaluations on a bi-annually or quarterly basis. How often is more a decision the board has to make on their own, and the purpose of the evaluations? The key will be to actually take action on the evaluations.
DIY or find a board evaluation supplier?
Evaluations can either be done on your own, or by an external supplier. The advantage of doing it ourselves is that we can tailor it to our specific needs, the disadvantages include some risks of biases towards the questions being asked and a loss of anonymity. The advantage of using a supplier is that we get an outside view and honest answers due to anonymity. These are just to name a few, and the list can go on with how suppliers can often deliver the evaluations in a digital format, which can make it easier to track the development of the board over time.
What should digital board evaluations include?
An evaluation consists of three distinct phases that can be used when you are evaluating suppliers.
- Collection
- Analysis
- Presentation.
The collection is about the ease of use and compliance with regulations such as GDPR. A supplier should be compliant in all aspects of the data collection. Over time the data collection stage has become more important to ensure a high response rate.
Analysis is about transforming a lot of data into facts, preferably actionable facts. Still, many evaluation tools only amalgamate data which often leaves the board with a lot of questions to answer. The results are left in the dark, and without any conclusions or actionable insights. Externally reviewed conclusions can provide an excellent basis for the internal discussion of improvement.
The presentation often includes a report, written or oral. Suppliers design reports in totally different ways. Some seem to be working according to the principle – the more the merrier – and you receive a thick report that often only contains data. Other suppliers are more thorough and convert the data into conclusions. The top-tier suppliers will supply you with a highly condensed report containing both data and conclusions that can track the board’s performance over time.
How do you find a supplier for the best board evaluations?
You can find rudimentary questionnaires in board administration applications such as Boardmanual, admincontrol, and like. Board evaluations, however, are not their core product or service and the quality can be questioned. Many suppliers can be found just by googling “board evaluations” or “board evaluation tools”, the results often contribute to a playbook or questionnaire to follow on your own. This can also provide a comprehensive performance evaluation.
How to choose a supplier for the best board evaluations?
The first decision to be made is if you decide on a DIY approach or use a professional supplier. For those considering costs, the cost of a board evaluation is 1% of the cost of the board. The value of the evaluation usually outweighs the cost many times. Supplier selection can be done by understanding the three phases of the process: collection, analysis, and presentation. How important are these three aspects for you and how well do the different suppliers perform in these dimensions?
Here are some questions for you to consider when collecting information on different evaluations (collection stage):
- How easy is it to answer the questions?
- Are the questions or statements easy to understand?
- Can we tailor-make free-text questions that are relevant to us right now?
- Can the supplier remind respondents individually if they have not answered?
- Is the tool GDPR-compliant?
Here are some questions to consider for the analysis stage:
- Are the questions or statements written in a way that allows to draw concrete and actionable conclusions?
- Will the supplier provide you with a prioritized list of improvements?
- Can you easily compare the results from the evaluation to last year’s performance?
Here are some questions to consider for how the presentation of results can be done:
- Can you choose both written and oral presentations of the results?
- Does the presentation contain the raw data?
- Does the presentation contain analysis and conclusions?
- Are the conclusions actionable?
- Is the written report condensed – preferably 5 pages or less?
How can we help you?
If you are interested in getting help from a supplier for board evaluations we are here to help! At Governance@work we offer different evaluations for your board, management team and CEO. They can be done individually, but also together giving a 360* perspective on your governance performance. If you are interested contact us to learn more!