Topics:   Board Composition,Board Evaluations,Corporate Governance

Topics:   Board Composition,Board Evaluations,Corporate Governance

November 13, 2018

The Secret Ingredient for Powerful Board Assessments

November 13, 2018

Maybe you talk too much during board meetings. Maybe you don’t talk enough. Maybe you harp on topics your fellow directors are tired of hearing about, or perhaps you only chime in during discussions about your area of expertise and they wish you would contribute more.

But how do you know if no one tells you?

In PwC’s 2018 Annual Corporate Director’s Survey, 45 percent of directors said they think at least one of their fellow board members should be replaced. Half of those think two or more colleagues need to go. This is not a new trend. These numbers have hardly changed over the past few years, which tells us that boards are underperforming even as new technologies, disruption, and shareholder activists are demanding they step it up.

The most common criticisms directors have about each other is that they overstep the boundaries of their oversight role or don’t challenge management enough. The directors in our survey also said some members’ interaction styles hurt board dynamics, while others lack essential skills or seem to be slipping because of advanced age.

No matter the issue, much of this discontent could be alleviated if more boards were willing to give each other one thing: constructive feedback. Only 31 percent of the directors in our survey said their board conducts individual director assessments, and there are several reasons why.

The first is tradition. Directors simply haven’t gotten into the habit of giving each other regular feedback. The second is avoidance. Telling someone how well they are (or aren’t) performing isn’t the easiest thing to do. Another factor is that individual assessments aren’t required—just an evaluation of the board’s overall performance. The annual board assessment requirement for NYSE-listed companies doesn’t specify how to do them, which is why so many end up being a check-the-box exercise.

Most of us don’t change without a precipitating event, and many boards lack the impetus to change their culture from one of go-along collegiality to transparency and honest feedback. If the chair were to suddenly announce the board was going to start conducting individual assessments, directors would likely worry that board leadership is trying to clean house. That can create all kinds apprehension and resentment you don’t want.

But here’s the opportunity: as boards seek to diversify their composition to include more women and people of color, or specific skill sets like digital or cybersecurity, they’ve had to expand their selection criteria beyond retired CEOs and those who sit on multiple boards. As a result, many directors now joining boards don’t have the same level of boardroom experience as their predecessors and often could use help to grow into the role.

Board leaders can use this as a trigger for change. For example, I was advising a board the other day that was going through a refreshment and onboarding two directors that had never served on a board. My suggestion was to use that opportunity to change the board culture by starting an individual feedback process that the entire board could participate in.

Directors should also keep in mind that the motivation for the board to institute individual director assessments should be to create a high-performance culture, not a vehicle for pushing people out. For the same reason that companies give employees annual performance reviews, directors need to know what their fellow board members appreciate about them and where they need to improve. An added benefit of this process is that directors who refuse to adjust won’t be as surprised when they are asked to go.

Other factors to consider:

  • Who should conduct the assessment? Assessments can be led by the board chair, the lead director, the nominating and governance committee, or a third-party facilitator. Any of these choices is fine, although I suggest that boards hire a third party to conduct the assessment every few years to provide greater impartiality and an outside view.
  • What methods should we use? Many assessments include a combination of questionnaires, facilitated discussions, and individual interviews. For individual director assessments, I recommend that whoever is leading the assessment gather feedback from each director about the other members and then share that feedback in one-on-one discussions.
  • What do we do now? Assessments are worthless without follow-up. Boards should use the information they’ve gathered about the performance of their committees and individuals to create action plans, then track their progress on addressing the areas of improvement.

The payoff for these efforts, despite the hard work involved, will be a better performing board and, consequently, a higher-performing company. With the right process, honest participation, and appropriate follow-through, directors might even find themselves agreeing with the adage, “Feedback is a gift.”

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