The importance of board evaluation by Parmi Natesan, Senior Governance Specialist at IoDSA
An ideally constituted board of directors is strong, diverse, balanced and independent, staffed by directors who have the ability to devote the appropriate time and attention to their professional duties.
Too many organisations lack this, and recent corporate headlines have highlighted the importance of the effectiveness and contribution of an organisation’s board of directors. Board performance is increasingly under scrutiny by shareholders, regulators, the media and other stakeholders.
There is increased pressure for companies to be governed properly, and this, together with King III, has driven boards to make self-assessment a part of their agenda.
King III guidelines state that improved board performance and effectiveness can be achieved through regular and timely appraisals of the board: “Yearly performance appraisals of individual directors, the board, board committees and the chairman, can provide the basis for identifying future training needs and, where necessary, explain why a re-appointment may or may not be appropriate”.
Today’s boards are faced with many challenges and expectations. The recently effective Companies Act 2008, and the associated increased potential for directors’ personal liability, highlights the need for a competent, diligent and informed board.
A well-conducted board appraisal will assist in benchmarking the board’s performance against established best practice.
The board evaluation allows for some reflection on the role of the board, what its objectives are, and how it has fulfilled those objectives. It allows for in-depth consideration of what resources the board might need in order to achieve its goals, while providing a forum through which directors can consider the ways in which the board contributes to the overall goals and strategy of the organisation.
Good boards and directors are those who continually strive for improvement, and an annual board appraisal, facilitated by an independent third party, is a highly effective means to achieving this.