If you are a listed company, an annual board evaluation is mandatory as per the UK corporate governance code – unless you can explain why you do not think it’s needed. (Though you’d better have a good reason!)
Mandatory or not, the value attached to such an exercise, if done correctly, is substantial. Appraising the performance of your management team is common place: setting targets, objectives and looking at skill gaps is expected and valued by most staff.
Without a doubt, if done properly, the process will improve their – and your business’s – performance. You may well consider, then, why the evaluation of what is effectively the driving force of your company is so often neglected.
Partly this may be due to uncertainty as to what it is you’re evaluating. As experience tells me, many directors – particularly in the SME sector – just don’t know what they don’t know.
The process can be a home-spun process, and the web also offers some question-and-answer downloads – and, of course, you should check out the UK corporate governance code board evaluation checklist.
However, independent evaluation undoubtedly has more impact, both in terms of the process itself and in the perceived and actual added value.
When looking at what it is you’re evaluating, you need to consider at the very least, some of the following:
- Confidentiality – any potential that dilutes this will tarnish the process and prevent the participants being truly honest.
- Smart – any evaluation needs to be: specific, measurable, attainable, realistic, timely,
- Commit to actions – there could be a number of things, from personal development programmes to boardroom cullings and new appointments. Whatever the action plan that evolves, if you do not commit and indeed carry through with them, not only will the evaluations not work but any future evaluations will be poorly regarded.
In a board evaluation process, you need to look at a number of things, but the following are key headings:
- Legal knowledge
- Governance knowledge
- Board dynamics
- Governance practices
- Board member relationships with the chair
Within each of these sections, there may be multiple questions to ask, but these are the major areas that need prioritising.
Jo Haigh is head of FDS corporate finance services. Jo can be contacted on 01924 376 784 or email@example.com.
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