Board scrutiny: Everybody’s doing it
The Wall Street Journal reports approximately 19 percent of the largest public U.S. companies hired an outsider to evaluate their boards in 2013 — a 17 percent leap since 2010. Those numbers come from Spencer Stuart, an executive search firm. In five years, up to 35 percent of major companies could be putting “board doctors” to use. Financial and banking firms were some of the first to start making calls for checkups.
Fundamentally, a board evaluation is an opportunity for boards as a collective body to increase their effectiveness based on feedback the evaluation provides. Continuous improvement and development of board and board committee processes and procedures is imperative to ensuring board effectiveness.
Today, there is an increased level of acceptance and sophistication in board evaluation. However, the evaluation techniques are still in their infancy. I foresee that this acceptance will continue. You may ask why. My observation is that the driving forces are based in the heightened regulatory environment and increased reputational concerns coupled with pressures from shareholders.
Today, each individual director’s value to the board is coming under sharper scrutiny. Concurrently, I see a new generation of directors on boards that come to the position with openness rather than a resistance to evaluation These new directors do not seem to be nervous about evaluating their colleagues, and they have their own standards of excellence and hope that their colleagues do as well.
Basically, they do not see their performance in the boardroom outside of the standards of their executive capacity. They want to know what a board evaluation involves, what works, what does not work, and why. Finally, most notable, little by little, the antipathy that sometimes surrounds board evaluation is being replaced with a desire to see how an individual director’s performance compares to that of his or her peers.
For more information, see: Board Evaluation: Creating Strategic Performance and Effectiveness