Instead, the evaluation process should be designed to rigorously test whether the board’s composition, dynamics, operations and structure are effective for the company and its business environment, both in the short- and long-term, by:
- Focusing director introspection on actual board, committee and director performance compared to agreed-upon board, committee and director performance goals, objectives and requirements
- Eliciting valuable and candid feedback from each board member, without attribution if appropriate, about board dynamics, operations, structure, performance and composition
- Reaching board agreement on action items and corresponding timelines to address issues observed in the evaluation process
- Holding the board accountable for regularly reviewing the implementation of evaluation-related action items, measuring results against agreed-upon goals and expectations, and adjusting actions in real-time to meet evaluation goals and objectives
In determining the most effective approach to evaluation, boards should determine who should lead the evaluation process, who and what should be evaluated, and how and when the evaluation process should be conducted and communicated.
Leading the evaluation process
Leadership is key in designing and implementing an effective evaluation process that will objectively elicit valuable and candid director feedback about board dynamics, operations, structure, performance and composition.
A majority (69%) of Fortune 100 proxy filers disclosed that their corporate governance and nominating committee performed the evaluation process either alone or together with the lead independent director or chair. These companies also disclosed that evaluation leaders did or could involve others in the evaluation process, including third parties, internal advisors and external legal counsel. Twenty-two percent of Fortune 100 proxy filers disclosed using or considering the use of an independent third party to facilitate the evaluation at least periodically.
Determining who to evaluate
Board and committee evaluations have long been required of all public companies listed on the New York Stock Exchange. Today, board and committee evaluations are best practice for all public companies.
Approximately one-quarter (24%) of Fortune 100 proxy filers disclosed that they included individual director self-evaluation along with board and committee evaluation. Ten percent of Fortune 100 proxy filers disclosed that they conducted peer evaluations. Individual director self and peer evaluations are discussed below.
Prioritizing evaluation topics
Board, committee and individual director evaluation topics should be customized and prioritized to elicit valuable, candid and useful feedback on board dynamics, operations, structure, performance and composition. Relevant evaluation topics and areas of focus should be drawn from:
- Analysis of board and committee minutes and meeting materials
- Board governance documents, such as corporate governance guidelines, committee charters, director qualification standards, as well as company codes of conduct and ethics
- Observations relevant to board dynamics, operations, structure, performance and composition
- Company culture, performance, business environment conditions and strategy
- Investor and stakeholder engagement on board composition, performance and oversight
Forty percent of Fortune 100 proxy filers disclosed the general topics covered by the evaluation. These disclosures typically focus on core board duties and responsibilities and oversight functions, such as:
- Strategy, risk and financial performance
- Board composition and structure
- Company integrity, reputation and culture
- Management performance and succession planning
Focusing evaluation questions to elicit valuable feedback
About 40% of Fortune 100 proxy filers disclosed use of questionnaires in their evaluation process, with 15% disclosing use of only questionnaires and 25% disclosing use of both questionnaires and interviews. Questionnaires are a key tool in the evaluation process, but must be thoughtfully and carefully drafted to be effective. Questionnaire responses can be provided without attribution, which can promote candid and more detailed feedback.