Your board of directors is an invaluable asset to your corporation. Well-functioning boards provide diverse experience, independent perspectives, and expert oversight to guide your business in the right direction. So, it’s important to ensure your board is fulfilling its obligations by following bylaws and meeting expectations and goals.
That’s where board evaluations come in. Board evaluations measure a board’s effectiveness, help identify strengths and weaknesses, and elicit candid feedback to drive performance. Not only do evaluations keep the board on course, but they also boost transparency, promote accountability and foster investor confidence.
Conducting board assessments can be challenging, however, for companies that do not have the resources to lead an effective evaluation process. There is no one-size-fits-all evaluation model, which is why many companies choose to engage a third-party facilitator such as an advisory firm skilled in designing custom board assessments. These independent reviewers lend greater credibility to the process by being dispassionate, objective and non-confrontational.
The Value of Board Assessments
In a nutshell, a board evaluation tells you how the board is performing.
Is the board fulfilling its responsibilities and meeting goals? Are company expectations clear and understood? Is the board organized appropriately and functioning properly? Does it have the right composition of diversity, expertise and skills? Are board meetings productive? Are board members collaborative and communicative? Do they have the resources they need to thrive?
The evaluation process helps companies fulfill their oversight requirements and improve or enhance the board’s effectiveness by turning findings into strategic action. It’s also an important tool for improving governance practices and strengthening relationships between the board and the C-suite.
Clear communication and strong collaboration among board members and between the board and the C-suite are critical components of a successful coalition. Building and fostering these trusted relationships takes continuous effort. Distrust can brew when board members feel they do not have a voice or are not part of the conversation, or when executives feel left in the dark. Board evaluations can uncover these tensions and reveal gaps in relationships and performance.
Even if your company is not required to perform annual evaluations for regulatory compliance, doing so provides an opportunity to gain greater insights into your board’s health and efficacy as well as ensure a stronger foundation for your business. Voluntary assessments demonstrate a willingness to self-reflect and a desire for continuous improvement.
The Advantages of a Third-Party Board Assessment Facilitator
For maximum effectiveness, board evaluations should be customized for your company. Designing a tailored evaluation process and approach takes considerable planning. There are multiple factors to consider, such as:
- Goals and objectives: is the evaluation strictly for compliance? What are the company’s governance objectives?
- Internal structure and dynamics: are there any issues among board members or between the board and the C-suite?
- Company conditions: is the company going through major changes?
- Topics: what questions will deliver the most useful feedback?
- Procedural: how will the evaluation be administered?
Addressing these questions is just a small part of the evaluation process. Few small and mid-size companies are equipped with the right internal resources to design and administer self-evaluations, much less analyze the results, report on the findings, and develop strategic action plans. Plus, self-evaluations are often misleading because stakeholders are not always comfortable offering candid feedback.
Engaging an experienced third-party consultant to oversee and manage board evaluations brings a higher level of expertise, transparency and objectivity to the process. A consultant may drive greater results by leveraging their knowledge of governance best practices and trends and independent perspectives. They can ensure the right questions are asked and that all stakeholders are fairly represented.
The options for using a third-party evaluator vary by desire and need. Some boards rely solely on independent assessment, while others use a third party every two or three years. A company might also hire a consultant to oversee a part of the process, such as question development and data analysis, and facilitate the rest internally.
When choosing how to administer your board evaluation, it’s important to keep your goals top of mind. Companies seeking a streamlined, objective process that delivers actionable insights and continuous improvement should consider whether they have the internal resources to execute an effective evaluation process. If not, engaging a third-party consultant may produce the best results.
Contact me to learn more about third-party facilitation and how Gray Reed Advisory Services can help.