Tag Archive: Steven R. Walker

Undertaking an Honest Self-Assessment: Is Your Board Aligned?

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In my last post, I shared three questions every board should ask itself when conducting an evaluation:

  • Are we independent?
  • Do we have chemistry?
  • Do we have the right team?

Now, let’s see how boards are finding the answers.

Preliminary data from the 2012 NACD Public Company Governance Survey to be released this fall shows:

  • 92 percent of boards conduct full board evaluations.
  • 83 percent of boards conduct committee evaluations.
  • 48 percent of boards conduct individual director evaluations.
    • Of those individual evaluations:
      • 56 percent are self-evaluation.
      • 51 percent are peer evaluation.
      • 31 percent are evaluation by the governance committee.
    • 12 percent of boards allow management to evaluate them as part of a 360° review.

What Do the Numbers Tell Us?  

Clearly the vast majority of companies are conducting board evaluations of some type.  Is this the result of regulation or a commitment to good governance?  Some companies are required to perform evaluations by stock exchange mandate.  Others have been influenced by the 2009 Securities and Exchange Commission (SEC) rule on proxy disclosure enhancements, which required boards to expand disclosures with regard to directors’ individual skill sets, diversity and overall board composition.

While meeting regulatory requirements may be part of the motivation behind board evaluations, in our experience of facilitating evaluations, we’ve found that the primary driver is a desire to build a high-performing board, well-suited to anticipate, meet and overcome the challenges ahead. Increasingly, boards are moving away from the “check-the-box” mentality and utilizing evaluations as a tool to ensure the board is aligned with the company’s long-term strategy.

As noted above, almost half of our survey respondents conduct individual director evaluations.  While self- and peer-evaluations continue to be the thorniest of the bunch, we’ve found they tend to yield the most fruitful results.

Now is the time to look at your board’s evaluation processes. When was the last time your board examined its composition and performance?  Do you approach evaluations as a pro forma exercise, which can minimize insights, or are you taking an honest look at whether your board’s practices and composition are optimized to meet the company’s long-term goals?

Self-Reflection: Three Questions Boards Must Answer

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The stakes are higher than ever before. Public expectations are greater than ever before. It is an immensely challenging business environment in which boards must now play a decisively stronger role to ensure the highest standards of corporate governance.

To that end, boards need to embark on a continuous process of self-assessment. We cannot do better tomorrow until we ask ourselves an important question: How are we doing today? Only where self-reflection is part of the board’s DNA can it provide the strategic guidance that defines its mission.

While many large and small questions drive self-reflection, three essential questions begin the process.

  • Are we independent?

There are often fundamental warning signs that a board is no longer thinking independently and that self-interest may be clouding its judgment. One is tenure. How long has each member served? Is it possible that, as a result of many years of service, some members have become too narrow in their perspective or that their own personal investment in the company might create a conflict when big decisions need to be made?

“It is generally agreed that director perspectives on a particular company can become stale and even compromised after many years of continued service,” according to the Bridging Board Gaps report by the Columbia Business School and the University of Delaware. “It may be difficult to remain objective about a company one has served for a long time.”

In other instances, circumstance simply makes independent judgment impossible. If a family business goes public, for example, family members cannot function as independent-thinking board members.

The self-reflection that a board needs to assess its own independence has to be a tough-minded, conscientious process. Hard questions need to be asked. But the board that has the courage to ask itself the hard questions is all the more likely to have the courage to act decisively to address critical problems in the future.

  • Do we have chemistry?

There has to be some real chemistry in the boardroom if discussions are to be open and free-wheeling. Board members have to trust each other. They have to feel free to float new ideas and challenge others. They don’t have to be best friends, but board members need a sense of camaraderie to assure a creative group dynamic.

An attentive, enthusiastic and engaged board means more efficient decision-making. Are your board members attentive, engaged and active? Are there certain directors who are not? Is there some adjustment, some way to change the chemistry to ignite a higher level of enthusiasm?

  • Do we have the right team?

Having the right team means building a well-constructed board, with members from a variety of backgrounds who are ready to meet the challenges ahead. Having the right team means a broad range of skills, talents and perspectives that can feed the company’s strategy in multiple contexts. It is a competitive necessity, reflecting varied work experiences, personal backgrounds and educational training.

Really think about your board composition. Do the directors around the table offer a diverse mix of industry experience? Do you have expertise across various disciplines such as operations, marketing and finance? Watch out for too much expertise in any one industry. Whatever the company’s business, independent input is essential if the board is to advise on the multiple opportunities and problems that confront management.

In fact, board members are often all the more valuable when they can see the company as other stakeholders see it.

Self-reflection is a never-ending process. Questions about your independence, chemistry and  diversity must be constantly revisited and broadened to ensure optimal service.

Self-reflection is also a challenging initiative.  Performing an objective, holistic evaluation of your board may require the engagement of independent professionals who stand ready to provide the benefits of their significant experience and intellectual capital.

Sometimes others need to see you before you can really see yourself.