Lack of feedback is self-destructive

 Investors have seen their fair share of governance failures in recent decades and they started looking at board compositions with a critical eye. The cost of governance failures is real, tangible, and terrible and if you have lived long enough, you observed that. In the aftermath of the global financial crisis and numerous corporate scandals, there seems to be a lack of governing body evaluation.

Fascinatingly, I can’t think of a single workgroup whose performance gets assessed less rigorously than corporate boards. According to behavioral psychologists and organizational learning experts; people and organizations cannot learn without feedback. A lack of feedback is self-destructive. No matter how the good board is; it’s bound to get better if it’s reviewed intelligently.
 

In a nutshell, boards need to conduct board evaluations because it’s considered a best practice. Whether it’s a public board, private board, or non-profit board, all board members are accountable to those they serve and they need to do the best job that they can during their board service. Board evaluation is a process where boards assess their effectiveness. The purpose of board self-assessments is to be sure that boards are fulfilling their duties and responsibilities and that appropriate processes are in place to ensure that boards are giving due diligence to planning and oversight over the organization. Essentially, no one directly oversees the board, so they must take an annual objective look at themselves as individual directors and how they function as a group.

King IV recommends boards to evaluate their performance because they will be able to assess whether their members possess the right mix of backgrounds and competencies necessary for the board. Equally, the new Public Enterprise Governance Act (1/2019) made provision for performance agreement with the board members; this may serve as a wakeup call to the governing body to prepare and gear toward board evaluation. How directors interact with one another has a major impact on their effectiveness. 

The crucial basis of good corporate governance is to help each other and to do so ethically with a high level of moral conscience thrown into the mix. Hence, board directors should be evaluated not only on the knowledge and expertise that they bring into the boardroom but also on how well prepared they are at meetings and how well they interact with other board members. Through the evaluation, the board will ensure that board directors don’t have any current or impending conflicts of interest.

In setting up the evaluation framework, the governing body should ask itself whether the exercise is the result of regulation, a commitment to good governance, merely a compliance exercise, or it is aimed at improving and sustaining the performance of the governing body, its structures, and individual members. Based on the board purpose of evaluating the following objectives should be tested:

•  Quality of the monitoring and risk-management role.

• Quality of the strategic and other business-related advice.

• Board dynamics and board members’ pro-active participation.

• Diversity of the board

It is the responsibility of the governing bodies to develop a robust process for evaluation which must be done each year and consider a rigorous independent board evaluation to be carried out every three years by an external expert as a best practice. The chairman, supported by the company secretary, has responsibility for the process of board evaluation and for acting on the results. Generally, the outcome of the evaluation should be shared with the whole board and the results should influence, as appropriate, the future operation, development, and composition of the board. 

No alternative to good governance and any board with a vision will be attracted to board performance evaluation. Governing bodies’ performance review should make it to every boardroom table across the globe. The review may benefit the individual directors, boards, and above all the organizations. Further, it gives the external bodies a reassurance that governing standards are of a certain quality and lastly, boards’ evaluation process is an effective team-building and ethics-shaping activity.

By:

Onesmus K Joseph - ACIS/BAP/CFIP/PPL

MPHIL Candidate - KNUST (Kumasi; Ghana) 

Governance Professional

josephonesmus@yahoo.com