In 2004, the New York Stock Exchange mandated that the boards of all listed companies undertake an annual self-evaluation to gain perspective on how effectively they and their committees are functioning. Many other organizations, including credit unions, followed suit as a matter of good governance. Board assessment processes, however, often become a missed opportunity to gain real insights. Filling out a form to satisfy the NYSE requirement can become a routine, "check the box" exercise, instead of a deep look into board effectiveness and culture. Assessment is an opportunity for boards and directors that are serious about continuous improvement to lean forward, take a hard look at themselves and produce a practical action plan to enhance effectiveness.

For NYSE-listed companies, the chair of the Nominating and Governance Committee generally manages this initiative with the entire committee having oversight responsibility for integrity of the work. For other companies, the board chair may oversee the process. Several key decisions are determined at the outset. What is the structure and process of the assessment? Will a survey instrument be used (e.g., the NACD board survey)? How will the assessment be tailored for the company's current situation? Will it involve numerical scores (downside: "check the box" mentality), textual answers (downside: superficial replies) or both? Will a director, a member of senior management or an external firm collect the evaluation data? Will individual interviews be conducted? Will individual directors be evaluated?

Assessment topics can include:

  • Strategy: Do agendas properly address strategic priorities? How often?

  • Communication: Does the board meet in Executive Session at the conclusion of every meeting to help prioritize issues for the next board agenda?

  • ERM: What is considered in enterprise risk and how is risk evaluated?

  • Management oversight: What is the board/CEO relationship? Is there sufficient feedback? Is there succession planning? Are there interactions below the C-suite?

  • Logistics: Is meeting frequency adequate? Are board materials sufficient and provided in a timely manner?

  • Committees: Are the correct committees in place? How are they functioning?

  • Continuous learning: How are outside perspectives and new information acquired?

  • Board culture: Is it collegial? How is consensus formed? Does collegiality inhibit frank discussion?

  • Board composition: Does diversity in talent, skills, race, gender and outlook support the company's needs? Should certain members leave the board due to age, longevity or lack of participation or collegiality?

  • Director performance: Are directors adequately prepared? Is "airtime" well distributed? Is there sufficient onboarding?

Assessments provide a point of reference for the board's current practices, and should show improvement over time as issues raised by the work are addressed. Self-administered assessments are the norm, however, every two or three years, independently facilitated interviews by an outside firm should occur as a best practice. In-depth director interviews by an experienced facilitator can provide insights that can shift board performance to a higher level, far beyond what a self-assessment using a standard instrument can achieve. The information collected must remain confidential. The chairs of the board and the governance committee receive a draft report and then work with the facilitator to produce the final report and recommendations.

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