Board Performance Evaluations

"The Foundation of Sound Corporate Governance"

Should you be concerned about the effectiveness of your organization’s corporate governance?

Shareholders who have been victimized by shoddy corporate governance practices and the government regulators of most free world countries certainly are! The US Sarbanes-Oxley Act of 2002 (Canadian Securities Administrators CSA Act) introduced sweeping and significant changes to corporate governance raising director accountability for their stewardship, both as individual directors and as a governing body to a new level. What was previously optional is now mandatory.

Has your organization embraced director performance evaluation or performance appraisal as corporate governance prerequisite, as a sound business practice? How about the accountability of corporate officers, the performance of the Audit Committee, the Compensation Committee, the Corporate Compliance & Quality Assurance Committee, the Nominating Committee, the Finance Committee, and External Auditor oversight? Are standards in place for assuring proper disclosure of financial reports including material facts? Have corporate governance policies been put into place to limit conflicts of interest, multiple directorships, and sanctions for wrong doing?

Sound corporate governance – more than attending meetings.

Robert Townsend in his book, “Up the Organization,” first published in 1970, indicated that management in too many corporations just tolerates directorship –the Board – as a necessary evil. Their treatment of board (paraphrased) is to feed them a few cocktails before the board meeting, serve a large steak dinner, and hope that some are still awake to move that the meeting adjourn. In 2002, three decades later, the numerous incidents of corporate misfeasance and malfeasance brought about The Sarbanes-Oxley Act. In 2004 the New York Stock Exchange adopted a requirement that the boards of all listed companies must conduct regular self-examinations. But, director and board performance evaluation and appraisal is not limited just to those corporations listed on the Stock Exchange or under the scrutiny of the Securities and Exchange Commission. It applies to every organization – for profit, non-profit, not-for-profit and public. Sound and effective corporate governance is a universal concern.

Establishing a starting point to effective director evaluation.

The Articles of Incorporation and By-laws of organizations generally set out how the corporation is to be governed -- how the board of directors is created; qualifications for directors; election or appointment procedures; duties, responsibilities and ethical conduct of directors; expectations of directors to act prudently, in good faith, and in the best interests of the corporation; and more. These prescriptions in law establish the foundation for each individual director’s performance to be evaluated as well as the evaluation or appraisal of committees of the board and the board of directors as a whole.

Whether you serve on board of a Fortune 500 company, the board of the local community club, as an elder on your church board, or as a governor on the board of a golf club, you have been placed into a leadership position – the corporate seats of power – to serve the best interests of the stakeholders of the organization. You are expected to abide by or help create the Vision for the organization, the Core Operating Principles, the Strategic Plan, establish appropriate policies to guide the operation, maintain competent management at the helm, appraise results, and periodically account to the stakeholders who will judge how well their interests are being met.

The boards of all organizations, corporations, and like entities are beginning to adopt structured evaluation processes to test their individual and collective performance as a corporate governance body. Evaluations might include both objective and subjective factors rooted in regulatory requirement or established through policy as performance expectations. Some boards simply conduct a full board performance evaluation. Others conduct individual director evaluations as well as 360 degree evaluations. The point is: These boards take their director role, duties and responsibilities, and conduct very seriously and performance is subject to periodic appraisal, and in some instance removal of underperforming board members.

Benefits of director evaluations.

A well-structured performance evaluation process for assessing overall board performance, committees of the board and individual director performance will encompass the following:

Individual performance assessment: Identify the strengths and weaknesses of how the board performs as a whole, and help to make appropriate changes that positively accrue to stakeholder interests and values.

A process of continuous improvement: Once begun, subsequent director evaluations will provide a scorecard against initially established performance benchmarks.

Accountability: Individual director evaluations and 360 degree evaluations provide the assessment of how directors perform in their given roles and functions; how performance needs to be improved; and in some instances, regretfully, when directors might be encouraged to vacate the board.

Skill-sets: Most progressive boards establish a skill-sets matrix that identifies the combination of skills, knowledge, and experience needed to constitute a well-rounded corporate governance body. Progressive, successful organizations, find that a wide range of individual director disciplines usually brings a broader policy perspective to the board table.

Alignment: A director is ordinarily expected to contribute his or her full attention and interest to the organization on which he or she serves as a director, free from conflicts and in alignment with the mission, goals and objectives, strategy and business model of the organization.

Communication: Director appraisal and evaluation provides an objective vehicle for meaningful board member communication; sharing misunderstanding or difficulty with board issues and processes; and developing a shared vision of director roles and functions.

Transparency: Board members who are performing as expected, are not reluctant to assess their stewardship, and are willing to report to stakeholders that board of director’s evaluation is a corporate policy that adds credibility as a corporate governance body acting in the best interests of the organization.

Get started correctly with Director Online©.

Director Online© is a web-based board evaluation tool that establishes the framework to perform an efficient, effective and thorough board evaluation.Director Online© was designed with you in mind. It’s web-based format and functionality makes it easy for your board to conduct evaluations, to customize the evaluation criteria, to communicate with individual board members, and to consolidate individual director commentary under each appraisal topic.

Director Online© will save your organization time and money while improving upon your corporate governance practices. If you are using a manual process, or have not established a process yet, then Director Online© is your answer.

To arrange for a live personal demo of Director Online© contact us at information@bauschke.com or call us toll free at 1-800-665-7776.

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