Check Board Performance, Not the Box

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?