If board evaluations are tedious or cumbersome, director engagement can be impacted negatively. Franklin Chen, Director, Diligent, suggests ways to boost the engagement of directors in, and therefore the effectiveness of, your board evaluation process.
A recent global report by the Corporate Secretaries International Association (CSIA) found that 57% of organisations surveyed perform yearly board evaluations. The report, Global Board Evaluation Practices and Trends, which was sponsored by Diligent, also found that, while some organisations are required to conduct self-evaluations annually by exchanges like the New York Stock Exchange, many boards volunteer to conduct evaluations to reflect on and discuss the overall effectiveness and performance of the board.
There is also growing sentiment from investors to ensure boards are behaving ethically and holding themselves accountable. Concerns over a board’s governance deficiencies and lack of diversity – both in terms of demographics and in terms of viewpoint/ perspective – are among the drivers for conducting evaluations. In short, organisations want their boards to be in the best position for success.
However, corporate secretaries and board administrators face challenges with board evaluations. Not being able to comment anonymously, manual processes, security, lack of engagement from board directors, outdated methods, and competing demands on directors’ time to complete ever longer and more numerous forms and information requests are all factors that compound the obstacles in achieving insights. Effective board evaluations require strategy, board evaluations technology and an actionable plan to bring it all together.
No option for anonymous feedback
One current method of submitting evaluations is sending them to board directors via email. However, if directors know that their comments can be traced back to them, they may not feel comfortable giving candid feedback, which may include criticism of other board directors’ performance. According to the 2017 Annual Corporate Directors Survey, published by PwC, 70% of director respondents said they found it hard to be frank and objective in evaluating their board.
The crux of board evaluations is obtaining honest insights from board directors in order to improve the performance of the board. Directors need anonymity to shield them from potential retaliation when providing critique – good or bad – on the board overall and on individual directors. If the responses to the board evaluation questions are not honest, you will not obtain actionable insights to help the board and the organisation.
Manual, time-consuming process
Online survey solutions are a step in the right direction, but are not tailored specifically for directors and officers (D&O) questionnaires. Many of these solutions have limited features or support, and may lack stringent security. Furthermore, using an online survey tool doesn’t always equate with easy adoptability; this could be yet another tool for your already busy directors and board administrators to learn, register and manage.
With most board evaluations, corporate secretaries oversee sending, tracking and compiling all of the feedback from board directors. The current approach is for corporate secretaries to email the questionnaire and compile feedback. However, because it’s a manual process, there is a higher risk of things being left up to interpretation, for example, when corporate secretaries can’t read the handwritten responses, or if someone answered too quickly.
Emailing questionnaires can also impact security and confidentiality. If you’re emailing the questionnaire, it could get forwarded – intentionally or accidentally – out to the public. As mentioned, directors want to provide anonymous comments and not feel threatened by the fear of retaliation.
To address the challenges of manually sending out board evaluations, some boards are turning to technology. However, on average, across all countries surveyed for the Corporate Secretaries International Association Global Board Evaluation Practices and Trends report, technology was only used in 29% of cases.
Lack of engagement by directors
Traditionally, the board evaluation process is often very long and laborious for both corporate secretaries and board directors. The average board evaluation, if printed out, is approximately 60 pages long. Unfortunately, some board directors must print out these massive paper packs, carry them around and feel weighed down – literally – by the process.
Due to the cumbersomeness of board evaluations, many directors don’t like the evaluations process; in fact the PwC 2017 Annual Corporate Directors Survey cited earlier found that 47% of directors surveyed wanted to eradicate the entire process. According to the same study, 63% of board directors just check the boxes on self-evaluations without much thought or care. Overall, if board evaluations are tedious or difficult, director engagement can be impacted negatively.
Board evaluations don’t need to be such a challenge for corporate secretaries and board directors. If done right, evaluations let:
- directors know how their performance is viewed by their peers
- directors reflect on and discuss their performance
- directors voice their concerns without fear of retaliation, and
- stakeholders know that the board is performing well.
- Below we suggest our top six best practices for board evaluations.
1. Agree on a well-planned, systematic process for evaluations
Make sure that the board evaluations process is well-defined, occurs at the same time of the year, and includes clear instructions and deadlines for participants. While developing the questionnaire, determine the scope of the evaluations; for example, whether it is for the entire board, individual directors, self-assessment or peer to peer. Some boards find it helpful to establish a board evaluation committee and delegate the legwork for completing evaluations.
2. Allow for anonymous feedback
Provide an anonymous way for directors to share their feedback. The mindset here is for stakeholders to identify individual strengths and weaknesses in order to benefit the whole organisation – even if it’s feedback critical of a particular director who may be underperforming. Anonymity can augment honest feedback and assuage the fear of retaliation. However, current approaches that require directors to email their responses are not truly anonymous since they can be traced back to the respondent via the email address.
3. Secure board evaluations
Security is paramount because board directors are giving sensitive feedback. Don’t use email because it’s insecure and vulnerable to hacks. Communicate to the directors that their individual responses will be secure and not leaked to other board members or the public. Consider adopting board evaluation technology that can secure the entire process.
4. Value board directors’ feedback, time and effort
Stress the importance of board evaluations as a way for directors to provide honest feedback that helps them do their job better, as well as improving the overall performance of the board. Communicate to board directors that evaluations create insights to resolve issues and to achieve goals; therefore, their participation is extremely valuable. Remind them that if board evaluations are done right, it can effect change.
5. Make evaluations easy
If the whole board evaluation process is difficult and tedious for board directors, engagement will drop and may impact the uncovering of any actionable insights. Make evaluations easy for board directors and corporate secretaries by moving away from emailing or sending hard copies of the evaluation questionnaire. Consider selecting board evaluations, such as a board governance software platform, that allows users easy access to the questionnaire. Providing too many different pieces of software can create confusion; therefore, it’s best to find a tool that can be integrated with existing board meeting management and governance software. Find a technology vendor that is user-friendly, secure, and that can be accessed on laptops as well as other mobile devices.
6. Automate where possible
Select technology and tools that can automate the process for directors and corporate secretaries for better efficiency. As discussed, the traditional approach of recreating the questionnaires, emailing or printing stacks of evaluations, sending them out and then compiling the insights is a challenge for the corporate secretary. Timeliness is the key to providing the insights necessary for boards to act. Look for a solution that allows the director to store their responses securely from the previous year’s survey. This is helpful because many questionnaires include similar questions from previous years. Consider a technology vendor that allows users the ability to port over their responses from last year and then review/decide whether they believe things have changed from the previous year. This helps provide continuity as well as allowing the board member to individually ‘benchmark’ progress from one year to the next.
‘Global Board Evaluation Practices and Trends’ (published by the Corporate Secretaries International Association in January 2018) is available at: www.csiaorg.com. ‘Annual Corporate Directors Survey’ (published by PwC in 2017) is available at: www.pwc.com. For more information on Diligent Board Evaluations, visit: https://diligent.com/au/board-assessment-tool/, or call: +852 3008 5657.