4 Steps to Better Board Evaluations

In today’s fast-paced business environment, investors and other stakeholders increasingly demand their board members represent a variety of skills, experience, and perspectives in order to address the dynamic landscape.

One way companies can respond to this mounting pressure is via regular and honest board performance evaluations, a practice that digital tools such as a portal can help make less onerous for board members while also making it easier to assess the results.

How Evaluations Work

New York Stock Exchange listing rules recommend that self-evaluations be done “at least annually” to decide whether the board and its committees are operating effectively, as noted by The Governance Counselor column. As of March 2015, one-third of S&P 500 companies reported that, in addition to full board and committee evaluations, they evaluate individual directors — double the number of large companies that reported doing so five years earlier.

Board evaluations should ask directors about practical time use as well as culture. The evaluations should ask, according to the column:

Does the board spend enough time addressing the right things? Is there enough of the right kind of information provided for board meetings? Is there enough time to review materials and to discuss important issues at board meeting? Are company interests placed above directors’ interests? Are conflicts resolved appropriately, in a timely fashion? How are directors’ interpersonal relationships, and the board’s relationships with shareholders, management, and key advisors?

Flexibility of Design

A sophisticated evaluation module should allow company staff to customise questionnaires. Administrators should have the flexibility to include straight “yes” or “no” radio buttons, rating scale, questions and conditional questions, as needed.

For example, if a director identifies herself as a member of the audit committee, either a separate questionnaire can be created containing committee-specific questions only, or optional committee related questions can be built into the questionnaire which can be skipped if they’re not applicable to the respondent.

“We recognise that different companies have different needs and different workflows, and as a result we provide all the possible options and combinations upfront when building out these questionnaires,” says Marco Morsella, Diligent’s Vice President, Product Design.

Digital evaluations also allow Administrators to run analytical reports from the customised questionnaires they’ve built and export the results as a PDF with pie charts, bar graphs or grid-based visuals, or as one of two Excel reports available: Percentages & Sums and Averages.

Third Party Access

Most corporate boards conduct their evaluations internally, which is appropriate when the board is functioning well. Some companies may engage an outside, third party consultant, but usually only when the issues at hand explode the scope of the board secretary’s office.

Boards “are more likely to hire a consultant when there are more significant issues to address and the board does not feel qualified to lead the evaluation,” according to an article published by the Harvard Law School forum.

But directors may be more comfortable and open with an internal facilitator. A board portal can help a board secretary’s office expand its capabilities to handle more of the facilitating internally.

Ease of Use

Evaluations can be part of a fully integrated board solution requiring a single login that gives directors access to a complete suite of corporate governance tools. Intuitive design makes it easy for directors to answer questions. The ability to access the portal from different devices and submit an electronic signature can be a boon to directors.

With digital evaluations, administrators can check which directors have opened, started, and completed the evaluation. Unlimited storage lets administrators save and archive questionnaires.

Please see contact us for more information on how we can help streamline your board evaluation process.