Boards can enhance a culture of continuous improvement by routinely having board members share and receive candid feedback from each other, as well as from senior executives and external parties with whom they regularly interact. This feedback can bring about important adjustments to board dynamics, agendas, processes, meeting materials and resources, and board and committee composition.
Additionally, investors and other stakeholders remain keenly interested in how boards are enhancing their performance and composition through regular assessments. Disclosures about a board’s evaluation process and results can enhance investor understanding and trust in the board’s oversight.
Annually since 2018, the EY Center for Board Matters (CBM) has reviewed proxy statements filed by Fortune 100 companies to identify trends in board evaluation practices. We find that companies continue to evolve their evaluation practices and related disclosures. A vast majority (95%) of 2020 Fortune 100 proxy filers provide at least some disclosure about their evaluation process, up slightly from 2019 and 2018. While the scope and details of the disclosures continue to vary, we offer the following six observations and emerging trends.
1. Evaluation of individual directors is increasing
Since 2018, the most significant change we have observed is that more boards are expanding their evaluation process to include individual director evaluations. Almost half of 2020 Fortune 100 proxy filers disclosed that they performed individual director evaluations along with board and committee evaluations, up from 24% in 2018.
While board and committee evaluations have long been required of all public companies listed on the New York Stock Exchange and are a best practice for all public companies, this growing momentum around individual level assessments is new. By more directly addressing questions of director performance, individual director evaluations may raise the bar for clear introspection, respectful candor and healthy dissent.
Among the companies that disclosed performing individual director evaluations, it was not always clear whether that assessment involved peer evaluation, director self-evaluation or both. Twenty-nine percent made clear that the individual director evaluation component includes director peer evaluations, up from 10% in 2018, and 11% made clear that it involves self-evaluation, up from 5% in 2018.