Few governance issues are as challenging as assessing the performance of boards. The symbiotic connection between firm management, board results and management determines whether a board’s performance is more of a science than artand often not clear. For example it is possible that a board is managing the company well, but shareholders are unhappy with the low return on investment. The board may have inherited management and governance issues and is working hard to make the situation better. It may have also invested in new strategic projects and developed a turnaround plan.
In other cases the board can get too involved in the details of operations and make decisions that should be left to the management. These issues are made worse when the board is not making use of a suitable process to assess its members. It is easy for small issues to become major issues, which could affect the effectiveness of the board.
The board could have developed an environment that doesn’t consider performance assessment as a serious matter. It could be because it lacks the systems in place to gather information about performance, or because it’s unable to gather the required boardroom skills needed to effectively perform its assessment duties.
In addition to having the right boardroom expertise Boards should also be open and willing to deal with the results of the evaluation. The board should determine areas that need improvement, and work with the management team in developing an action plan. This could include arranging regular board training sessions on relevant topics to increase knowledge levels across the board. It could also be a way to address information asymmetries.
