Few governance issues are more complex than assessing board performance. The evaluation of board performance is more an art than science, as there is an interconnected link between firm, management, and board outcomes. It’s also not always clear cut. A board might be doing a good job of overseeing a company however, shareholders are upset over the poor return web on their investment. The board could have acquired governance and management issues and is working hard to turn the situation around. It might also have invested in new strategic initiatives, and created an overhaul strategy.
In other instances the board could become too involved in operational aspects and take decisions that should be left to management. These situations are made even more challenging when the board fails to have a method that is suitable for the evaluation of its members. It is easy for small issues to escalate into serious problems, which can damage the effectiveness of a board.
The board might have created an informal culture that doesn’t consider its responsibilities regarding performance assessment seriously. It could be that the board doesn’t have the proper systems to gather performance data or the boardroom skills necessary to carry out its evaluation responsibilities.
In addition to having the right boardroom expertise Boards must be open and willing to deal with the results of the test. The board should identify areas of improvement and collaborate with management to devise a plan for action. This could include regular board meetings to improve knowledge across the board.