Some boards pretend to perform evaluations. Others do it half-heartedly. Still others take an aggressive approach that creates huge conflicts of interest. Here are some of the more common types of board evaluations that simply don’t work.
Scofflaw. This type of board is insulted by ‘over-regulation’ and ignores the evaluation process. They take a ‘wait to see if we get caught’ approach. Their directors doubt that they will suffer serious consequences for refusing to do it, and some plead ignorance when caught. Some even expect that the requirements for self-evaluation will disappear in time.
Perfunctory. This type of board asks its general counsel to make a checklist of compliance steps and items to be disclosed. They then assign the General Counsel to ensure that a proxy statement includes this information. In other words, their directors trivialize the effort by turning it into a minimal checklist delegated to legal counsel.
Back-Slappers. This type of board allocates a five- minute slot on the agenda called ‘Board Evaluation’. At the designated time, the director asks the group: “How did we do this year?” People nod, declare they did well and congratulate themselves. The chair then says “Pat your neighbour on the back for a job well done,” and they immediately go on to the next item on the agenda. In other words, this group completely mocks the purpose of the evaluation process.
Controllers. Some boards perform their own evaluation by assigning the task to one director. The director interviews all the others, compiles the input, identifies recommendations and reviews the findings and recommendations with the board. This is entirely subjective, and often highly compromised. We know of one company chairman who insisted on conducting the evaluation himself. When confronted by the CEO about the honesty and objectivity of this approach, he simply said: “Tough. There is no law that says I can’t do it. We’re doing it my way.”
Conflicted. Some boards ask a third-party to conduct the evaluation, but then contract a company with a direct conflict of interest. Imagine, for example, a board that hires an executive search firm to conduct the evaluation. This firm does so, and then says: “Your board is missing a distinct set of skills, but we can find the person you need”. Firms that provide services should not also provide evaluations. There should be no conflict of interest.
Half a Deck. Some well-intended boards conduct an evaluation, but do not do a thorough job. They may focus on processes, structure, committee composition and skill sets. But they may ignore group dynamics, board behaviour, committee leadership effectiveness, and information symmetry between committees or between supervisory and executive boards. They mean well. But they are playing with half a deck of cards when looking at their overall performance.
So…if there are that many ways for boards to do things wrong…what works?