By Stuart R. Levine
Published in, The Credit Union Times
In 2004, the NYSE mandated that the boards of all listed companies undertake an annual self-evaluation to gain perspective on how effectively they and their committees are functioning. Many other organizations, including credit unions, followed suit as a matter of good governance. Board assessment processes, however often become a missed opportunity to gain real insights. Filling out a form to satisfy the NYSE requirement can become a routine, “check the box” exercise, instead of a deep look into board effectiveness and culture. Assessment is an opportunity for boards and directors that are serious about continuous improvement to lean forward and take a hard look at themselves and produce a practical action plan to enhance effectiveness.
For NYSE listed companies, the Chair of the Nominating and Governance Committee generally manages this initiative with the entire Committee having oversight responsibility for integrity of the work. For other companies, the board chair may oversee the process. Several key decisions are determined at the outset. What is the structure and process of the assessment? Will a survey instrument be used (e.g., the NACD board survey)? How will the assessment be tailored for the company’s current situation? Will it involve numerical scores (downside: “check the box” mentality), textual answers (downside: superficial replies) or both? Will a director, a member of senior management or an external firm, collect the evaluation data? Will individual interviews be conducted? Will individual directors be evaluated?
Assessment topics can include:
Assessments provide a point of reference for the board’s current practices, and should show improvement over time as issues raised by the work are addressed. Self-administered assessments are the norm, however every two or three years, independently facilitated interviews by an outside firm should occur as a best practice. In-depth director interviews by an experienced facilitator can provide insights that can shift board performance to a higher level, far beyond what a self-assessment using a standard instrument can achieve. The information collected must remain confidential. The chairs of the board and the governance committee receive a draft report and then work with the facilitator to produce the final report and recommendations.
The analysis should go beyond administrative governance issues to an examination of board culture, the unspoken structures and beliefs that determine behaviors, including expectations, customs and processes. Companies generally gain valuable and at times unexpected insights. For one client, its collegial board discovered that many directors thought their skills and knowledge were not properly utilized, and certain directors monopolized “airtime”. Another company discovered unaligned, differing views on strategic priorities. Another board realized it stifled creativity of the CEO and senior management by reacting with criticism to new ideas; it lacked receptivity to innovation that might increase organizational value. Several boards found no communication with management below the C-suite.
The outside facilitator can perform individual director evaluations, thereby providing a constructive independent viewpoint to the board and governance committee chairs. If several directors identify a deficiency or problem with a specific director, the chair can undertake the delicate process of providing feedback to give the person a focus for growth and improvement. The whole board can benefit, especially when the behaviors of one or two directors limit overall effectiveness.
Credit Union members and public shareholders deserve well-functioning boards that are looking after their best interests. A quality process of board assessment that supports action for improvement will go a long way toward satisfying this goal. Although your board may function well today, it can always get better.