Few governance issues are more challenging than assessing board performance. Assessment of board performance is more an art than science due to an underlying link between the management, the firm and board outcomes. It’s also not always easy to determine. For example it is possible that a board is good at governing the business, but shareholders are dissatisfied with an unsatisfactory return on investment. The board could have inherited management and governance issues and is working to change the situation. It could also have invested in new strategic initiatives and formulated a turnaround plan.
In other situations the board could become too involved in operational aspects and take decisions that should be left to management. These situations are exacerbated when the board isn’t using an ideal process to evaluate its members. Without a formalized evaluation process in place, it is easy for minor issues to become serious problems that can affect the effectiveness of the board.
The board could have cultivated an attitude that doesn’t consider performance assessment as a serious matter. It could be because it doesn’t have the systems in place to gather performance data, or it’s unable to gather the required boardroom skills needed to effectively carry out its assessment duties.
In addition to having good boardroom expertise Boards must be willing and open to take on the findings of the test. The board should be able to identify areas for improvement and collaborate with management to create plans for action. This could include arranging regular board meetings on relevant topics to improve knowledge levels across the board, and address information inconsistencies.
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