Meghan Day Image
Meghan Day
Principal Solution Designer

Board evaluations: Assessing the board 101

April 25, 2024
0 min read
Someone carrying out a board assessment

One of the worst things that boards can do is to view the annual board evaluation process as a rote exercise where they tick all the right boxes that will make investors happy.

Boards should consider the time, effort and resources they spend on board assessments an opportunity to add value to the company. Having a good process for doing board assessments demonstrates that boards have the proper knowledge, skills and ability to provide strong oversight.

Board evaluations: A step-by-step guide

If you're unsure where to start, this step-by-step guide will lead you through eight important steps to an effective board evaluation process.

Step one: Use board assessment technology

Digitization takes the pain out of manual processes for board evaluations. When your board opts to use digital board assessment technology, it streamlines the process for evaluation administrators, board directors and anyone else who offers feedback. The evaluation administrator can set up a questionnaire with various question types and distribute it completely online. The program notifies them of completed questionnaires and close dates. Board directors will appreciate the time that electronic evaluations save them. They can access the evaluation using any device and even come back to it at a later day or time to complete it, if necessary. The system can also be set up to allow for anonymous answers to net more candid feedback. Board directors can also sign the evaluation electronically.

Evaluation administrators will appreciate how easy it is to create charts, graphs and reports and gain immediate insight, with custom visual reports that are ready for presentation and sharing shortly after all evaluations are completed so the board can effect immediate change.

Step two: Define your objectives

Establish what your board hopes to achieve through the evaluation. Clarify your objectives so you can set goals for the evaluation and make decisions about the scope of the process. Be clear about the reason for doing the evaluation, whether it's because it's mandated, to solve a problem or to send a clear message to investors that the board is committed to good governance.

In making these decisions, consider the size of the company, the stage of the business and the impact of the competitors. If you use Diligent Evaluations software, you won't need a team of people to complete the process. It can be managed in short order with just one administrator.

Step three: Decide whom to evaluate

Boards that choose to only do individual board evaluations may limit their insight into problems related to governance and performance.

Peer evaluations are the best way to get a holistic view of the board's performance. Diligent Evaluations makes them easy to do anonymously, which will yield more candid feedback. Peer evaluations will highlight the strengths and weaknesses of individuals. The results will also help boards identify gaps in communication between board directors or between board directors and managers.

When choosing to do individual director evaluations, the administrator can correlate the results with the whole board to determine the most appropriate action. Diligent Evaluations eliminates barriers associated with time and costs, so boards have adequate time to conduct evaluations that bring meaningful results.

Step four: What does the board need to be evaluated on?

Many of the issues the board wishes to tackle will fall into similar categories. By classifying the board's objectives into themes, the results will clarify problems and, hopefully, identify possible causes. Classifying issues also helps to test the practicality of specific governance solutions.

This step requires boards to consider objectives in light of best practices for governance. This process should yield a list of areas for the board to investigate, and they'll need to balance the objectives with the scope of the evaluation and the resources that are available for the project.

This is another valuable reason to consider using Diligent Evaluations, which takes up fewer resources, can be completed in less time and yields more meaningful results.

Step five: Who will the board ask to provide feedback?

Boards that only solicit feedback from the whole board and CEO evaluations will overlook valuable feedback from other places. With the Diligent Evaluations tool, it's easy to get both internal and external feedback. Managers and employees are often a valuable source of internal feedback. Owners and vendors may also provide external sources of valuable feedback. Government departments and major customers provide additional sources of feedback. A careful review of potential sources of information, along with a list of their relative advantages and disadvantages, will help administrators narrow down the most appropriate people to participate in the process.

Step six: What techniques will be used to net the best results?

The next step is to decide on the evaluation techniques. It's generally accepted for evaluation administrators to choose between a range of qualitative and quantitative techniques.

Get qualitative data by creating questions that ask 'what,' 'how,' 'why,' 'when' and 'where.' Qualitative data will help identify key governance problems and screen for new solutions. This process requires some subjectivity on the part of the administrator, but it can be mitigated by using quantitative and qualitative processes. There are three main ways to obtain qualitative data interviews, board observation and document analysis.

Quantitative data will yield results that are easier to measure, while qualitative results will yield a richness of data. Survey questions are the most common form of quantitative techniques used in governance evaluations. There is no best methodology for survey questions, but the flexibility in designing survey questions in Diligent's Evaluation tool gives administrators the upper hand in constructing questions that will yield the most honest, true answers.

Step seven: Who will administer the evaluations and collect the results?

The company secretary or chairperson is usually the best person to conduct the board evaluations. An independent director, lead director or board committee may also take the lead in the board evaluations process. Boards are more frequently depending on third parties to conduct evaluations. With Diligent Evaluations, that isn't necessary because the whole process can be done internally and anonymously. Boards that use electronic evaluations have the option of hiring a third-party administrator and involving the talents of specialist advisers or consultants.

Step eight: Managing the results

The central objective of the board evaluation process is for the board to agree on an action plan to improve governance.

Diligent's Evaluations tool will put the results of the evaluation into the hands of the board directors shortly after the results come in. The evaluation administrator can compare the results to the original objectives, as determined in Step Two, to customize charts, graphs and reports that supply the most accurate and valuable results. Boards can then determine how best to use their results.

Where boards have done evaluations on individual directors, the evaluation administrator and/or the board chair will review results with individual directors privately. Results should be shared with senior executives when the focus of the evaluation is on communication and relationships between the board and managers. Typically, the whole board gets the results, and they should have an opportunity to discuss them in the boardroom.

Final words: Maximizing the results of board assessments

Once the results are in, boards need to find the balance between transparency and the interests of shareholders and stakeholders who desire some assurance of faith in the board's competence. Boards may release the results as part of mandated disclosures. This is another benefit to using Diligent Evaluations because the program automatically creates visual reports that will quickly be ready for publication.

By communicating the evaluation results openly, the board sends a clear message of their commitment to governance and improving their performance. At the same time, positive evaluations will help confirm board effectiveness.


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