The Board has the mandate of setting out the strategic direction of the company, overseeing management’s performance, and ensuring that the company operates in compliance with the expected legal and ethical standards. With an increase in stakeholder expectations and enhanced regulatory requirements, there has been an increasing need for use of various mechanisms to assess the performance of the board.
One such mechanism is board evaluation which is a method that assists the board in verifying whether it is meeting its expectations, whether it is making progress towards achieving the organization’s set goals and objectives, whether it is following the board charter, guidelines and bylaws, and provides an opportunity to gather feedback on a board’s effectiveness.
As a measurement tool, an effective board evaluation should be role-based and have the ability to assess performance. The evaluation can be conducted internally or externally and takes various forms, including: full board evaluation; board committee evaluation and non-board evaluation.
The board evaluation process ought to be objective, effective, and concise. The process ought to assess the actual performance against the expected performance and best practices.
Board evaluation provides a comprehensive view of a board’s performance and is strategically important for the following reasons:
- First, board evaluation provides a feedback mechanism for improving board effectiveness, maximizing strengths and developing strategies to enhance the board’s effectiveness in areas that require development.
Board evaluation is a strategic tool that helps boards understand their strengths and weaknesses, identify areas for improvement, and align their efforts with the organization’s strategic goals. It involves a systematic review of the board’s performance, including its structure and processes.
- Second, board evaluation may assist in enhancing board diversity and inclusion. One of the critical tenets assessed during the evaluation process is the diversity of the board and its committees. The results of the assessment are critical in identifying diversity gaps and developing strategies for addressing them. Such strategies may include developing policies to enhance diversity, recommending the recruitment of board members from underrepresented groups, and increasing board training and development on diversity and inclusion.
- Third, performance measurement through board evaluation may help in identifying and mitigating risks. Directors are individually and collectively responsible for actions they take, thus they need to understand the various risks faced by the organization they serve.
Board evaluation supports risk assessment and mitigation as it highlights weaknesses in the board’s governance practices. Possible weaknesses may be related to compliance risks as a result of a breach of the law or regulations, potential business losses due to inefficacious financial reporting, potential reputational damage due to a breach of ethics, or internal conflicts with management that may affect the board’s ability to provide effective leadership.
- Fourth, board evaluation is useful in facilitating board succession planning. Evaluation of the Board assists in assessing the skills, knowledge, and experience of individual directors and identifying knowledge and skill gaps that may exist. This may guide the development of a succession plan, guide recommendations on board rotation and succession of directors and balance skills to give rise to quality decisions.
- Fifth, performance measurement through board evaluation assists in enhancing stakeholder inclusivity and engagement. Through the evaluation process, the board assesses its engagement structure and engagement practices and identifies possible areas to improve its relationships with stakeholders, including management, shareholders, staff, clients, and the public. The areas of assessment include responsiveness, transparency, accountability, and independence.
In conclusion, board evaluation is a strategic and essential tool for ensuring that the board is functioning effectively and meeting its objectives. It provides valuable feedback on the board’s performance, enhances board diversity and inclusion, helps in risk management, facilitates board succession planning, and enhances stakeholder engagement. Institutions that invest in board evaluation are better positioned to improve their efficiency, achieve long-term success, and maximize their impact.