•     a boardroom culture of mutual respect, honesty and openness that encourages constructive debate

•     diversity of experience, styles, thought and, as far as possible, age, gender and nationality

•     a good relationship with the CEO and senior management

•     a common purpose and strategic clarity

•     an experienced chairperson who can manage the board agenda, encourage debate and work in harmony with the CEO

•     efficient board structure and processes including committees, board papers, information flow and a good company secretary.

The paper also concluded that factors contributing to dysfunctional boards include:

•      an adversarial atmosphere in the boardroom or an unmotivated board with a tendency to group- think

•      skill deficits or lack of genuine independence on the board

•      a poor relationship with the CEO and senior management which can impede information flow

•      conflicts of interest or factional interests on the board, perhaps due to a dominant shareholder

•      poor chairmanship – a chair who is too week, too autocratic or too close to the CEO

·        poor processes leading to inefficient use of time.

Other findings included:

·          Disclosure on board evaluation is strongly influenced by the regulatory approach of each country.  In the US, where a rules-based approach to regulation is prevalent, disclosure is relatively standardised and perfunctory.  In the principles-based jurisdictions (Australia, UK, Canada and some European countries) there is the opportunity for richer disclosure although a common format is still apparent with only a few companies voluntarily offering more (or different) information.  

·          As with all corporate governance processes, a performance evaluation process needs to be adapted to a company’s circumstances, including the stage of the corporate life cycle and length of tenure of board members.  The same process does not have to be used every year.

·          An effective board will not save any performance issues for discussion during the annual board evaluation but will undergo a continual self-improvement process.  Good boards will be proactive, not only assessing themselves retrospectively but prospectively.

·          Opinion is divided on whether performance evaluation of individual directors is a valuable exercise or whether it can inhibit whole-board dynamics and group performance.  There perhaps needs to be more discussion over why, in the context of a board, the individual can be less important than the team.

·          The relationship between the board and senior management is vital to effective board performance in terms of information flow and strategy development.  For this reason, it is good practice to involve members of senior management in the board evaluation process.

·          Many board members find that board effectiveness can be greatly enhanced if the board members, particularly non-executives, have a chance to get together outside of formal board meetings to discuss issues that might not fall within the formal meeting agenda.  

·          The general opinion is that the use of an experienced external consultant can be very valuable but may not be justified every year.  External reviews are costly but may be particularly useful when the board is going through change.

·          Outcomes of board evaluation processes range from relatively minor amendments to board processes (meeting agendas, format of board papers etc) through alteration of committee structures (amalgamation or changes to committee charters) to significant changes in board composition (to fill skill gaps or remove directors contributing to dysfunction).

·          The process of implementing the outcomes of board evaluation is a crucial step that perhaps deserves more attention.  It is a vital component in whether a board evaluation process actually leads to better board performance.

·          The links between the process of board evaluation and other processes such as director re- election, succession planning and director education and development are becoming clearer and more formalised in practice.

·          Boards are creating detailed matrices of the skills required on the board and are using these in their succession planning and nomination processes.  However, there is still room for improvement in succession planning in order to reduce the influence of dominant board members and to improve long-term plans.

·          Some directors were open to the concept of increased reporting on board evaluation, including providing more detail on non-sensitive outcomes.  Other directors were of the view that this was of little value and, interestingly, the fund managers surveyed agreed.  It seems that the institutional investors place little value on annual report disclosures, preferring to assess board members based on their backgrounds and personal characteristics.

·          Both directors and fund managers understood that the link between board performance and company performance is complex and that even the best of boards can be hindered by factors beyond their control.

·          Both directors and fund managers agreed that it is difficult for outsiders to assess whether a board is performing effectively.  However, indicators include: 

o    willingness of a company to seek and respond to market feedback

o    personal characteristics and credibility of directors

o    professional history of directors

o    company performance within the industry

o    quality of board decisions, particularly in times of crisis

While the paper notes the ASX Governance Council principle recommending companies disclose the process for evaluating the board, APRA regulations (APS 510, LPS510, or GPS510) were not noted.  These require the boards of APRA-regulated entities to have procedures for assessing, at least annually, the board’s performance relative to its objectives, and the performance of individual directors.

The ACSI commissioned research is a needed contribution in assessing board evaluation effectiveness.  In addition, it has underlined the need for more research.

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