A board evaluation checklist

Directors recognise the attributes of a well-run board as having a chair who is competent, elicits contributions from all directors and has well-structured meetings and annual performance discussions with individual directors.

A well-run board should not be confused though with an effective or high-performing board.

It is tempting to think that leaders whose careers have progressed to membership of the board would no longer benefit from a structured review and feedback process.  The fallout from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry challenged that assumption.

Board evaluations can facilitate a qualitative discussion around the intersecting functions, expectations and the competence of the board including key areas such as:

  • The relationship with the CEO and management and the interplay of the roles
  • Board dynamics, culture and composition
  • Individual director effectiveness as viewed by the rest
  • The currency of charters and the operation of committees including committee leadership
  • The interaction between committees and the flow of critical information
  • Strategy and its execution
  • Risk and compliance

If there is any doubt of their value, the ASX Corporate Governance Principles (4th Edition) recommends a periodic evaluation of the performance of the board, its directors and committees ideally conducted by an external facilitator.  Further, listed companies should disclose the process, and whether a review has been conducted during the reporting period.

As boards look to the challenges of this new financial year it is probably worthwhile to consider the effectiveness of board evaluations. Even for “well-run” boards, there is probably room for review, reflection and adjustment or process, skills and experience, and outcomes.

Here is a board evaluation checklist of what some boards have been considering this season.

1. Does the board have the skills and experience composition to address strategic issues and opportunities?

2. Has the board the structure, in terms of committees and supporting charters, to address these issues?

3. Has the board a process whereby it can be sufficiently agile, and break out from standard calendar of meetings and committees, to recognise opportunities and threats?

4. In response to COVID-19, many local and offshore competitors are well capitalised, with money to spend on M&A. Has our board addressed how we are positioned in terms of skills and governance for this?

5. In most industries the larger companies are effectively turning themselves into technology companies to maintain dominance. Has our board effectively addressed this?

6. Does management get the support they need from the board to ensure the business maintains relevance for a rapidly changing world? Are management involved in the board evaluation process?

7. How “adult” are the dealings between management and the board? Does there need to be an honest reckoning to get things on track to enable a better and supportive working relationship?

8. While financials may be in great shape, what are the ESG risks that could impact value, and starve the company of capital for growth? Does the board have an adequate risk assurance process to capture and review these matters?

9. In a fast changing world, does the board have a process to deal with renewal needs that may require members to consider shortening their tenure to make way for needed skills and experience?

© Guerdon Associates 2024
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