Few governance issues are more complex than evaluating board performance. The interplay between firm management, board performance and the results of the firm determines whether a board’s performance is more art than science -and not always clear. A board could be doing a good job in governing a business, but shareholders are unhappy about the poor return on their investment. The board might have inherited management and governance issues and is working hard to make the situation better. It could also have invested in new strategic initiatives and shaped an overhaul strategy.
In other situations, a board may become too involved in the operational aspects and take decisions that should be left to management. These situations are made even more challenging by the fact that the board does not use an ideal process for the evaluation of its members. It is easy for small issues to escalate into serious problems, which can affect the effectiveness of the board.
The board may have created an environment that doesn’t take performance assessment seriously. This could be because it doesn’t have the right systems in place to collect information on performance, or it’s unable to gather the necessary boardroom expertise to effectively perform its duties of evaluation.
Boards should not only have the required skills, but also open to the results of the evaluation. The board should identify areas that need improvement and collaborate with management to create a plan for action. This could include regular board meetings to increase knowledge across the board.
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