The Business Case for Board Evaluations

The Business Case for Board Evaluations

by
Randall Peterson

Professor of Organisational Behaviour, London Business School

Do board evaluations matter? According to Randall Peterson, Professor of Organisational Behaviour at London Business School, it is important for companies to adopt a thorough board evaluation process. Some of the essential ingredients are open and honest communication as well as diversity inclusion.

How boards can establish an effective evaluation process

A board evaluation is only as good as the planning that goes into it. A board can purchase something “off the shelf” but that is unlikely to be a great fit with their current situation and challenges. For example, the board of a small start-up needs to ensure that all non-executive directors (NEDs) are actively involved in advising the management on how to run the business.

However, the board of a multinational firm needs assistance in understanding the business context and strategy. So the board itself should discuss what the needs are from the business, what its key priorities should be, and then seek a neutral outsider to collect anonymous feedback against those criteria.

The importance of a balanced board

If there is clarity of purpose for the board, who they need on the board should be a sufficiently straightforward answer. A skills audit and assessment should be conducted to know what skills exist, and then matched against what is needed.

A good assessment also looks at the customer base and reflects that in the boardroom as well.

If your customers are mostly female, then your board better have some women on it. If your customers are young, then your board should have some young faces on it. It is difficult to get all of these things together in one small group; that is the challenge of managing with a focus on diversity.

Ensuring clear communication

If you have gone through the processes outlined above, then communication is likely to be clearer because there is mutual agreement about purpose and skills needed. Anonymous feedback in the assessment should also help understand where there are communication issues.

Importantly, feedback from a board assessment should be both at the board level AND the individual level.

Is that individual meeting expectations? Are there difficulties in working with this person? And so on. Ideally, a chairman would do that on an annual basis, but a formal assessment process should definitely provide both levels of feedback.

Why measuring effectiveness is important

Most of what is in the first three answers is about effectiveness, mainly because evaluating compliance is fairly straightforward. Measuring effectiveness is harder, and effectiveness generally assures compliance, so it would be best to aim for measures of effectiveness.

The correlation between employee engagement and good board evaluations

In theory, this is not necessary. However in practice, when senior management seeks feedback to improve their performance, they will both be open to employees (i.e., encouraging engagement), as well as being open to feedback from the board. So in practice they oftentimes come together.

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