Good corporate governance is necessary to enable companies to operate more efficiently, mitigate risk and safeguard stakeholders. As custodians of corporate governance, there is a direct link between the performance of the board and the performance of the company which it oversees.
This has never been more true than now, given the crucial role that boards have had to play in guiding companies through the changing environment and continued uncertainty following the advent of the COVID-19 pandemic (“COVID-19”).
COVID-19 has greatly impacted business and operations, including the way the board and management have navigated the resultant threats and opportunities. Now, more than ever, boards must aim to improve their own effectiveness – and that of senior management, via performance evaluations, and the setting of performance goals, targets, and objectives.
Not only will performance evaluations enable the board with the opportunity to capture the collective views of board members regarding how well the board dealt with the volatility created by COVID-19, but the evaluations will also assist in developing an action plan on a way forward.
Furthermore, board evaluations have proven benefits including, but not limited to:
- Determining whether the composition of the board is optimal in terms of its members’ skills, knowledge and diversity of experience
- Identifying changes to be made to the company as well as to the board governance documents
- Determining whether board and committee meetings allow sufficient time for governance review and whether board committees work effectively
- Determining whether the information provided to the board by management is appropriate, sufficient and in a format that will foster healthy review
- Determining whether discussions are open and constructive, with all views considered
- Identifying key development areas and director development programmes to improve competency of board members
- Using the results to improve the nomination and election processes.
- Managing poor performance of members
- Determining whether new crisis-based working grounds could support the organisation in more successfully navigating urgent issues
Board evaluation processes are no longer just another formality in the corporate governance framework of a company, nor can it be a simple tick-box exercise. In order to achieve a clear action plan and to reap the benefits as mentioned above, boards require continuous and thorough reviews to better assess their shortcomings.
As there is a direct link between the performance of the board and that of companies, boards should continuously challenge themselves and regularly evaluate whether they are, in fact, an effective and high-performing board. Board evaluations are all the more fundamental in today’s climate to equip boards with the fundamental capabilities to effectively tackle damaging black swan events.