Best practices for board of directors’ self assessment
Board self-assessments originated some years ago from concerns by shareholders over whether boards were being honest, transparent and accountable. The NYSE and the NASDAQ support shareholder concerns by requiring some shareholders to conduct annual board self-assessments and to make their findings available to investors and others.
Regulatory requirements stand as proof that boards are holding themselves accountable. Best practices guide the path toward accountability. The true test of accountability lies with boards and their individual directors and their commitment to performing at their full potential.
Dave Anderson, author of No-Nonsense Leadership, sums up the importance of accountability in this way, 'Leaders must develop a lower threshold for alibis and become better communicators and enforcers of what they want done. If you are more interested in being liked and popular than holding people accountable for results, you have a serious leadership weakness. It is not your job to make people happy. Your job is to get them better. Holding people accountable to high standards and results is nothing to apologize for. Failing to stretch them to their potential is.'
Would Your Board Conduct Self-Assessments If They Didn't Have To?
The primary reason that board directors either dislike board evaluations or prefer to rush through them is that they simply take too much time. Many boards don't do them unless someone requires them to. Boards that make the commitment to doing annual self-assessments may find that some board directors don't engage in the process effectively. Sadly, many board directors view self-assessments as a rote task where they can check the boxes as expediently as possible and without giving them much thought.
This problem begs the question, 'Would your board be more strongly committed to doing board assessments and giving them their due diligence if the process were easier and less time-consuming?' In most cases, the answer is 'yes,' so let's take a look at what makes the current processes so burdensome.
In their quest to find an electronic solution for board self-assessments, some boards have resorted to online survey solutions. Online surveys may work well in theory; however, they're too generic to meet the industry-specific needs of boards. Such programs still require board secretaries to develop and load questions, send them out and manually analyze the results. They may not be able to save their questions and results in order to expand on them the following year. Board directors need to learn the system just to learn another new system every year after. Manual processes for analyzing results are subject to human error. Most important, online survey solutions lack the level of security that can assure board directors that their answers are anonymous, confidential and secure.
Six Best Practices for Board Self-Assessments
Boards that are pursuing quality evaluations will move in the right direction by reviewing the following six best practices for board self-assessments:
- Agree on a well-planned process. Set a regular time of year for conducting board self-assessments with clear instructions and deadlines. Many boards find that it's prudent to set up a board committee to make recommendations for decisions about whether the scope of the assessments will include the whole board, individual directors or both. The committee should also make recommendations for whether the board will pursue individual assessments or peer-to-peer assessments.
- Allow for anonymous feedback. Board evaluations should encourage honest feedback by ensuring that results will remain anonymous. Manual processes and online surveys require using personal or company emails, which defeats the goal of remaining anonymous.
- Alleviate concerns about security. Board directors want to have assurance that their answers will not be leaked to their peers or to the public, and that there is no risk of retaliation.
- Acknowledge and value the effort that board directors put into the process. Get buy-in from the board to complete the process with fidelity and assure them that the results will be worth it.
- Create a process that is easy, streamlined and mobile-friendly. Board directors will look more favorably on completing board assessments when they can use an electronic tool that integrates with existing board management and governance software. They'll also appreciate being able to complete the evaluations on their favorite mobile device.
- Automate where possible. Use a program that enables you to replicate the previous year's results and add new ones, so the board can more easily validate its progress.
How the Diligent Evaluations Module Solves the Hindrance to Effective Board Self-Assessments
Diligent Corporation looked at the problem areas related to board-self assessments and designed a board self-assessment solution that supports best practices and addresses issues of functionality, security, ease of use and automation.
To pose the question again, 'Would your board be more strongly committed to doing board assessments and giving them their due diligence if the process were easier and less time-consuming?' Let's look at how the Diligent Board Assessment tool does just that.
Functionality
Diligent's board assessment tool saves templates and results for successive years, which saves board secretaries a significant amount of time in preparing questionnaires. The secretary can track submissions and completions automatically and use the responses to create a variety of customized results in a few clicks. The tool virtually eliminates the risk of human error.
Security
The module uses the same high-security standards of Diligent Boards. For example, Diligent is ISO 27001-certified for its Information Security Management System, with SSAE 16/ISAE 3402 (SOC 1, Type 2) controls audited for nine consecutive years. Biometric technology makes it ultra-easy for board directors to sign in on any devices using their fingerprints.
Accessibility and Ease of Use
Board members who have familiarity with the Diligent Boards portal can use the same credentials to sign in to the board assessment tool. If users get interrupted midstream, they can easily sign out and pick up right where they left off at another time. Intuitive software means board directors can move through the process without needing training on the module.
Automation
The Diligent Board Assessment tool gives secretaries the option to import questions and responses from the prior year's evaluation. The software automatically reports averages and graphs that are presentation-ready.
Diligent Corporation has made a commitment to being an innovative leader in governance software products.
Board evaluations don't have to be so challenging; however, as discussed, outdated approaches to the process make evaluations difficult. Diligent knows that your board members will make a deeper commitment to the board evaluation process when they have a process that is easy, intuitive and mobile-friendly, which resolves the biggest issue of their not taking them seriously ' or not doing them at all. Automation also solves many of the front- and back-end processes for setting up the evaluations and analyzing the results. Combined with the Diligent Boards portal, Diligent Evaluations provides the most advanced solution for board evaluations for all types of organizations.
