How to enhance the board evaluation process
The corporate secretary or governance professional is increasingly taking centre-stage in convincing the board of the value of a thorough evaluation process and in facilitating the process and coordinating the remedial actions.
That is a key finding detailed in a research report, Global Board Evaluation Practices and Trends: Lessons for the Corporate Secretary, released by the Corporate Secretaries International Association in collaboration with Diligent, a provider of communication and collaboration tools.
The report, which was conducted among senior executives such as executive and non-executive directors and corporate secretaries in various countries, indicates that nearly one in three (31 per cent) evaluation processes are spearheaded by corporate secretaries or governance professionals.
To perform this role effectively, it notes that it is important for corporate secretaries and governance professionals to understand why board evaluation (and in fact board performance generally) matters and the value that can be added through a good board evaluation process.
‘As a result of human nature, many directors feel uncomfortable with the idea of being evaluated,’ it observes.
Even if evaluations are not required by regulation, the report says it’s a vital part of the company secretary or governance professional’s role to convince directors of the need for, and value of, a good board evaluation process.
It also recommends establishing a data base of information supporting these messages to directors and identifying barriers in the company that prohibit effective board evaluations.
Barriers could include an inappropriate balance between executives and non-executives; a lack of independence and conflicts of interest; a clash of personalities leading to a competitive environment and a lack of knowledge, skill and expertise.
‘The company secretary or governance professional will need to expect such barriers at some point and navigate the way to reaching a harmonious and effective environment where board evaluations become a welcomed initiative as opposed to a laborious task – and ultimately an environment which makes good corporate governance a top priority,’ the report states.
It adds that repeating the same process too many times may negatively affect the improvements post an evaluation. ‘The role of the corporate secretary or governance professional thus also extends to convincing the board of refreshing the process regularly to ensure it remains robust enough to retain the intended benefit.’
The research report also notes a growing use of technology in facilitating the questionnaire portion of the evaluation process. The many benefits of taking this route, it says, include convenience and ease, increased security and access to anonymous data for benchmarking.
The study detected a bigger improvement after an evaluation when the process concluded with a formal report.
‘Although this may be standard practice when evaluations are facilitated by external parties, internally facilitated processes do not necessarily always properly conclude the process,’ it states.
This report should include a comparison to the previous years’ results, indicating repetitive issues or improvements achieved as well as key deficiencies and proposed remedial actions to address them (including responsibility and deadlines).
The research also emphasised that the perceived value of an evaluation is affected by the number of recommendations implemented. As such, it recommends that corporate secretaries or governance professionals ensure that progress against the agreed remedial actions is discussed at least quarterly in order to retain momentum.
In addition, the corporate secretary or governance professional should facilitate or coordinate any agreed interventions, such as training or board development.
The report also advises corporate secretaries and governance professionals to challenge the company to report transparently and openly.
‘Although the research indicated that many companies are still only reporting very basic information, we are seeing more corporate governance codes requiring greater detail and additional transparent disclosure of board effectiveness evaluation processes and outcomes,’ says the report.
The research found that while some boards merely report that an evaluation took place, the corporate secretary should encourage more qualitative information to be shared, thus increasing accountability and good corporate governance.