Few governance-related issues are more difficult than assessing board performance. The symbiotic connection between firm management, the board’s performance and its results makes assessing board performance more art than scienceand often not clear. For example, a board could be managing the company well, but shareholders are unhappy with an unsatisfactory return on investment. The board may have been inherited by corporate, management or governance issues and is working to turn things around. It could also have invested in new strategic initiatives and created a turnaround plan.
In other cases the board may become too involved in operational details and making decisions that are best left to the management team. These kinds of situations can be made more difficult when the board fails to use an ideal process for evaluating its members. Without a formalized system for evaluation in place, it is easy for minor problems to become serious that compromise the effectiveness of the board.
The board could have developed an environment that isn’t taking performance assessment seriously. It could be that the board isn’t equipped to gather data on performance or the boardroom expertise required to carry out its responsibilities in evaluating.
Boards should not only have the required skills, but also open to the findings of the evaluation. The board should prioritize areas that need improvement and work with the management team to develop a plan of action. This could include arranging regular board meetings on relevant topics in order to increase knowledge levels across the board and address information asymmetries.
