BOARDROOM BEST PRACTICES

Importance of Using Secure Software for Board Evaluations

UK boards when conducting board evaluations often see conflict among board members, and that can lead to the leak of confidential information. In February 2015, two non-executive directors were forced to leave the board when it was shown that they were responsible for a leak to the Sunday Times. Board evaluations should be managed in the secure environment provided by Evaluation software.                   

Dynamics of Board Evaluations

A UK study of boardroom dynamics shows that there is a real danger of unresolved conflicts in the boardroom leaking to shareholders and even to the press.

For example, in February 2015, two non-executive directors at UK independent retail buying consortium and distributor Nisa were obliged to resign when leaks of confidential information to the Sunday Times were traced back to them. What motivated the non-executive directors to leak the information isn’t clear, but it is certain that they were not aware that such communications constituted a breach of their fiduciary duties.

Board evaluations are inevitably a source of tension and potential conflict. Tension can transform into conflict quickly, and the tipping point is almost always the result of a situation becoming emotionally charged. Board members may fear that their colleagues are rating their performance unfairly and that can lead to personality clashes. These can be particularly difficult to resolve and are more likely to escalate into situations of conflict, potentially resulting in one party either resigning or being asked to leave.

Most organisations are uncomfortable dealing with conflict as it arises, and board evaluations run the risk of exacerbating tensions that have only simmered until the evaluation starts. But if conflict becomes public, it can cause extensive damage and even have an impact on the company’s reputation.

Managing Board Evaluations

Managing board evaluations closely will help to control arising conflicts. But the evaluation process, with its questionnaires circulated on individual leadership and performance, may throw a bright spotlight on contentious issues.

At the same time, board members may not understand the borders that define confidential information.

“The Board of Directors’ legal obligations with respect to confidentiality are often not well articulated. Confidential board information includes material, non-public information, the disclosure of which is regulated by federal securities laws and by company-wide policies and procedures. It also includes sensitive boardroom discussions that have both personal and business elements, and implications. These discussions may be amongst board members outside of the formal board meeting settings. In order for boards to function effectively, directors must feel comfortable expressing their views with board members on corporate matters honestly and freely, without concern that their conversations will be made public or intercepted by competitors,” writes one expert in a recent report.

Tensions may not arise until the evaluation is complete and implementation begins. Board members should discuss putting recommendations from the evaluation into practice, but this invariably leads to a discussion of individual members and their performance. When this kind of discussion takes place under poor boardroom dynamics, the results could be volatile:

“Research evidence demonstrates that many boards suffer from poor group dynamics. Three-quarters of directors believe their fellow directors allow personal or past experience to dominate their perspective. A significant minority (44 per cent) say that their fellow directors do not understand the boundary between oversight and actively trying to manage the company. Thirty-nine per cent report that their fellow board members derail the conversation by introducing issues that are off topic,” according to a study by The Miles Group and the Rock Center for Corporate Governance at Stanford University.

The challenge is for board members to adapt their leadership behaviours to those that work well in the boardroom – and that includes appropriate behaviour during board evaluations.

Most directors join the board after acting successfully as executives or board members in previous roles, at other companies. Many come from executive, managerial or professional backgrounds where they hold positions of leadership. As board evaluations review the manner in which board members interact – determining which directors participate and how decisions are made – leadership, coaching and feedback are critical in this regard. Directors have important functional knowledge, but are generally not instructed on how best to contribute this knowledge in a boardroom setting, as the study notes.

As a result, board members are expected to contribute their expertise, but often they don’t know how to do that without stifling debate and shutting down board and committee discussions. “They are brought onto the board to contribute this expertise, but not in a manner that stifles debate and shuts down discussion. They are not recruited to boards to provide the ‘last word’ on topics, with other directors deferring to their opinion. They are recruited to contribute knowledge that the group as a whole can use to make better decisions. In truth, there is no reason to believe that forming a board from a group of successful CEOs will produce a high-functioning board.”

Keeping board evaluation conflict in the boardroom

Board evaluations treat some of the most sensitive subjects and involve high-risk data. For boards, it is critical to:

  • Engage in lively and even conflictual discussion for board evaluations and their implementation;
  • Ensure that all that discussion, regardless of tensions and conflicts that may have arisen, remains secure in the boardroom.

Diligent Evaluations are completely secure

To obtain these objectives, Diligent Evaluations provides the support needed for boardroom discussion security. Diligent Evaluations works within the high-security environment created for the Diligent Governance Cloud. All data is made safe with high-grade encryption, and up-to-date threat protection is ensured.

As part of our Governance Cloud ecosystem, Diligent Board Evaluations helps your organisation answer these questions by putting valuable board self-assessment data at your fingertips.

It’s a convenient alternative to cumbersome spreadsheets and off-the-shelf surveys, making it more cost-effective than relying on outside consultants. Every aspect of its functionality has been informed by Diligent’s experience with corporate, non-profit, healthcare and financial/banking boards worldwide.

Board Portal Buyer’s Guide

With the right Board Portal software, a board can improve corporate governance and efficiency while collaborating in a secure environment. With lots of board portal vendors to choose from, the whitepaper contains the most important questions to ask during your search, divided into five essential categories.

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