A company’s board of directors must understand its responsibilities, be able to identify and assess risks, and create an environment that is conducive to value creation. To do this, boards need to be effective, and yet too many are evaluated in the past tense, after there is a problem.
The best boards don’t focus on reports and compliance, but rather collaborate with management in order to maintain performance and determine the direction for the future. To achieve this, they must examine their governance processes and structures. In this regard they conduct rigorous reviews to determine their current levels of effectiveness.
The evaluations usually reveal an array of issues and obstacles that range from a few operational complaints that can be addressed about meeting length or agenda composition to thornier challenges like the effectiveness of the board’s role in making strategic decisions, knowledge gaps or competence, and director and executive succession planning. In most cases, these evaluations involve a mix of self-evaluations by individual directors and the board in general as well as third-party facilitation.
The best evaluations, whether conducted by the board or independent consultants who are hired for their impartial knowledge as well as their perspective, are holistic and take into account all aspects of a successful board structure, its processes and the people. They also include one-on-1 interviews with directors to get important, precise, sensitive and candid feedback that may not be captured by questionnaires alone. They also include recommendations that can be implemented that all directors are required to implement within a reasonable time.
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