The Importance of a Board Assessment Tool

Nicholas J Price
The quality of a corporation is determined by its practices of good stewardship and good governance, which is dependent on running annual board assessments. Stagnant boards are content to do the same things they've always done in the same ways they've always done them.

Corporate boards that work continually toward improving their board members and their functions move confidently toward handling challenges. They're willing to do what they need to do to make valuable progress. Change is what takes them out of the past and moves them toward the future.

Corporate change and movement are what cause transition within corporations. Technological and financial climate changes are occurring in abundance in today's marketplace. These changes are concurrently causing changes in the way corporations must do business to thrive and be competitive. As transition occurs, board skills and board compositions must change with it. Board assessments are valuable tools for boards to evaluate where their talents lie and where they don't.

In the recent past, the only board assessment tools that boards could access were manual ones. Technology developers designed board portals to make the work of boards more accurate and efficient. Board portals have worked so well that the designers at Diligent Corporation have been working hard to develop a complete array of board tools to enhance nearly every board duty and function. Electronic board evaluation software is the latest in electronic board tools to help boards be the best they can be.

How Board Assessments Promote Strategic Growth

Board assessments are part of best practices for good governance. As with any tool, board assessments are only as good as the tools and the analysis of the information they produce.

Board assessments show how well the board is performing and how well board directors are working with each other. Annual board assessments will show how well the board is addressing its legal obligations and its fiduciary duties. In addition, board assessments are a viable tool for discerning whether the board directors (individually and as a whole) are serving not only the corporation's current needs, but also the needs of the future.

How Board Assessments Promote Good Corporate Governance

Board assessments are part of the framework of good governance because the results of the evaluations highlight the board's commitment to good governance and stewardship. Understanding the principles of good governance is a necessity for board directors and officers to be able to follow through on their duties and responsibilities. Their responsibilities also require them to know and understand the needs of their shareholders. Communication is of great importance when engaging with shareholders and sharing information with them.

Board Assessments Demonstrate How Well Individual Board Directors Work With Each Other

The questions on board evaluation forms should be customized according to the needs of the corporation. Questions for individual directors should be aimed to get at the heart of how well board directors work and communicate with each other. The design of the wording of questions will help the board determine whether each board director is giving their best efforts and if the processes are set up to get the best from each board director.

Additional questions may explore issues such as whether the board has the right balance between strategy and operations. Board directors should be able to find the proper perspective between details and the overview and how the two intersect to pull the overall strategy into focus. Best practices also require boards to develop short- and long-term plans. Board assessments will evaluate the board's approach to short- and long-term planning to ensure that their plans have the proper balance to secure overall long-term profitability.

Board Assessments Demonstrate How Well the Board Works as a Whole

Boards need information to continually flow from management and, vice versa, for them to fulfill their duties as overseers. The boardroom requires a team effort to make sure that the flow of information is accurate and consistent. A primary factor in this flow of information depends on good communication between the board and management.

Board assessments are vital tools to determine if the collective board has the right skills for effective leadership. The board chair fills a critical role in managing dynamics inside the boardroom. Board assessments should provide assurance that the person who serves as board chair is a good facilitator who is willing to engage every member around the board table. Quality assessments will also indicate whether board directors can adequately differentiate their roles from the roles of managers.

A board with a solid, well-rounded composition serves the current and future needs of the corporation while remaining in full compliance with their legal obligations.

Diligent Director & Officer Evaluations Assist Board Administrators

Electronic board evaluation software vastly streamlines the process of board evaluations in comparison with conducting evaluations manually. Electronic board evaluations take less time, but we also know that any amount of a board member's time is valuable. This is why Diligent put much thought and testing into their board evaluation software. They want board directors to be able to get to the task of doing evaluations at the earliest opportunity and to learn the most from their efforts.

Board administrators typically take the lead in conducting board evaluations. Their duties may involve creating various questionnaires for different evaluation purposes. As lead information compilers, they usually consolidate the information into charts, graphs, reports or spreadsheets so the data is clear and meaningful. Collective data is useful for creating further assessments, forming more in-depth analyses and making presentations. When this work is done well, the data provides a comprehensive picture of the board's performance.

Diligent Director & Officer Evaluations Assist Board Directors

Most board directors understand the importance of completing annual board evaluations. However, as with many people, time constraints often become a formidable challenge for busy directors.

Diligent's D&O Evaluations software lets busy directors complete their board evaluations and other assignments on a laptop or tablet. They can assign their name or be completely anonymous for more candid feedback. The software lets them begin the evaluation when they have time and finish it at a later time, if necessary. They can even provide electronic signatures.

Diligent's Evaluations software also means that boards no longer have to hire a third party to conduct professional customized assessments. Standardizing questionnaires gives boards meaningful results from year to year. To make things even easier, the results of board evaluations are easily accessible for external auditors.

Board evaluations help boards to learn their strengths, gaps and weaknesses so they can effect immediate change and drive more value for the organization.
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Nicholas J. Price
Nicholas J. Price is a former Manager at Diligent. He has worked extensively in the governance space, particularly on the key governance technologies that can support leadership with the visibility, data and operating capabilities for more effective decision-making.