Evaluating board performance: Assessing effectiveness to strengthen governance
The second of this three-part series takes a look at how you can evaluate your board to ensure it is working effectively on your behalf.
I wrote recently about how to structure a board and the pitfalls to avoid. In this article, I explore how to evaluate your board’s performance. It’s a common governance risk found in organisations of all sizes.
An excellent place to start is with the Higgs Review ‘Good Practice Suggestions’, which were published in 2003 to provide guidance on the role of the Chairman, non-executive directors and any nomination and renumeration committees. The section on performance evaluation sets out clear questions that, when answered, show how well the board and its individual members are working.
Areas to consider include:
- The board’s composition and skills
- Its performance against objectives
- Its contribution to the development and testing of strategy
- The board’s role in risk management
- Whether the matters reserved for the board are the right ones
- Its focus on conformance
- Its engagement with any standing committees
- The effectiveness of its communication with stakeholders
- How the board has managed any crises
While the UK Corporate Governance Code is only applicable to listed companies and then purely on a comply or explain basis, it also provides some useful best practice guidance. This recommends alignment between corporate culture, purpose, values and business strategy and promotes integrity and diversity in business.
It states that the board, individual directors and committees should all undergo an annual evaluation. If needed, the chair should act on any weaknesses by proposing new board members or asking directors to step down.
The chair is a crucial part of this process and should be evaluated by the non-executive directors, led by a senior independent director who has secured the executive directors’ views in advance.
Ian Davidson is the chairman of Cravens, the UK’s oldest independent creative consultancy, where the team has recently strengthened its board and I’m a non-executive director. He said:
“Having grown successfully over the last three years we have continued to invest in evaluating and, when needed, changing the composition of our board.
“This has helped us avoid group think, achieve the right diversity of experience and maintain fresh perspective. It’s given us real confidence that we have the appropriate support in place to deliver our expansion plans as we extend our services and push into new sectors.”
The third and final post in this series will outline a proposed schedule and function of board meetings to help keep your organisation moving forward productively.
If any of this resonates and you’d like professional advisory support to help structure your business and achieve your growth plans, please email sarah.waddington@wadds.co.uk. l’ll be happy to help.