Few governance issues are more difficult than measuring board performance. The interplay between firm management, board results and management means that assessing the performance of boards is more art than science -and often not clear. For instance the board might be in charge of the company effectively, but shareholders are not happy with the low return on investment. The board might have inherited governance and management issues and is working to turn the situation around. It could also have invested in new strategic initiatives and developed a turnaround plan.
In other instances the board could be getting too involved in operational issues and making decisions which should be left to the management team. These situations are exacerbated when the board isn’t employing the right method to evaluate its members. It is very easy for minor issues to become major problems, which can damage the effectiveness of a board.
The board might have developed a culture where it does not take performance assessment seriously. It could be because it lacks the systems in place to collect performance data, or it’s unable to gather the required boardroom skills needed to effectively carry out its duties of evaluation.
Boards must not just have the appropriate skills, but also be open to the results of the assessment. The board should determine areas for improvement and work with the management team in developing an action plan. This could include arranging regular board meetings on relevant topics in order to increase knowledge levels across the board and address information gaps.
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