7 Secrets of Board Evaluations

Most boards conduct regular self-evaluations of their effectiveness, typically before the nominating/corporate governance committee sets the slate of director nominees ahead of the company’s next annual shareholders meeting.

NYSE-listed companies are required to do it annually – Nasdaq-listed companies aren’t required, but most do it because their investors & proxy advisors expect it.

There’s no required formula for how these evaluations are conducted, it ranges from a director leading the process to using third-parties to facilitate the evaluation.

Boards sometimes dig deeper by going further than evaluating themselves as a group to evaluating each individual director’s performance. About half the time, board conduct individual evaluations – but that statistic can be deceptive, because individual evaluations aren’t worth much if they are in the form of self-evaluations – where directors personally evaluate themselves. A more risky proposition for individual evaluations are peer evaluations, where directors evaluate each other – not too many boards engage in this exercise.

Here are 7 things to consider when conducting board evaluations:

• Make it safe (but not too safe)
• Breaking up is hard to do
• Pick the right person to faciltate
• Change it up every few years
• Ask the right questions
• Ask open-ended questions
• Follow-up to see if the process worked

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