If the status quo within a business needs to be challenged then board evaluations provide the ideal opportunity to test assumptions. Executed properly, they will bring to the surface just how aligned members of the board are on strategy, where points of conflict may be lurking, and whether the senior team has the talent to drive the organisation forward.
Iain Robinson, Managing Partner of AMG and former Chairman of business travel company Reed & Mackay, says: “For me, the really important bit about any board evaluation is to make sure you have a good understanding of what is excellent about the board and its contribution to the future, and clearly where improvement is based on that historical evaluation, but I think that you have to be looking at the strategic plan and asking two questions: is it any good?; and is the team capable of delivering?”
It’s a case of jolting people out of their comfort zones. Andrew Walker, Chairman at engineering concern Metalrax, says: “The board evaluation is an opportunity to take a step back and reflect on how you do things outside of the normal day-to-day activities.”
Denise Jagger, Partner at law firm Eversheds, says: “It’s critical to include the board in an evaluation of the overall performance of individuals in the organisation. But the evaluation is more than just about people on the board, it’s looking at the shape of the board and whether you have the right mix of skills and experience.”
The UK Corporate Governance Code recommends annual board evaluations with a third-party facilitator brought in every three years. Bernard Cragg, Criticaleye Associate and Senior Independent Director at commercial property company Workspace, says: “I started off thinking: ‘Well, another box to tick that you have to put in the annual report.’ But I actually think it is a process that is very worthwhile as it can be creative and change behaviours.
“It can and should involve all people on the board and it may even be worthwhile to speak to some of the people beneath the board as well to find out whether they are saying: ‘Does the board add value or are they just there as a corporate governance guru?’”
It’s a chance to get under the bonnet of the business. Andrew says: “What you actually want is to get board members to write down what points they think are particularly concerning. The chairman should see that the process is being conducted but not dominate it, and the other members of the board should review the process.”
In a business that takes performance seriously, it’s the type of review that should, in some shape or form, exist across the whole organisation. Ian Durant, Chairman of Capital & Counties Properties, comments: “To be effective, you need to stop and ask yourself at various points whether everyone round the table shares the view as to how effective you are being and how you can be more effective, to look at decisions that have been made, how you got to them, how people contributed to them, and to ask yourself whether there are any steps you can take to be more effective.
“It’s an attitude of mind really. If you believe that you wouldn’t benefit from an evaluation then you’re probably being complacent, which never leads to the best of outcomes.”
Jamie Pike, Non-executive Chairman at the manufacturing company RPC Group, says: “If a board is functioning well, I’m not entirely convinced such evaluations will allow you to perform necessarily better, but for underperforming boards they are absolutely essential. There can be areas which people feel uncomfortable about, or perhaps don’t necessarily know how the board is performing, and this is where evaluations can help.”
The company secretary has a critical role to play in promoting dialogue and debate. Jamie continues: “The role has become increasingly important because he or she is the only person who sees everything that goes on in the boardroom who is not directly involved in it. They are the only objective observer on the board – everyone else is inherently conflicted in some way.”
Bringing in an external party certainly creates an interesting dynamic. Bernard says: “A good external facilitator allows a full and frank exchange of views on a confidential basis and can be very constructive. They are not there just to be listeners, they need to be provocative and say some things that not everyone wants to hear. They need to do some research, too, to find out the history behind any issues in the company. The evaluation should also look at what the board has done well during the year.”
Andrew agrees: “An external facilitator can be really valuable when a board is split in its views and it needs a valued third party to help steer it through. Split boards do happen where you have NEDs and executives divided because you’re looking at opinions on the future; trying to get more data points will help clarify the confusion.”
So it’s important for the debate to be grounded. “The danger for boards is that you have an opinion fest and you become detached from reality,” adds Andrew. “Where I’ve found boards to be split it tends to be because of this, and then you have to puncture that balloon and get back to taking a view of what’s actually happening. That’s why you need to make sure that you’re getting the appropriate data points that allow you to test theories and opinions.”
The direction of the board has to be examined. Where is the company going? How will it get there? These are the questions that have to be addressed if a fresh perspective is to be gained. Denise says: “Too many boards are reporting mechanisms for the CEO… clearly, the role of the board is to check the performance against targets, but… really, I believe 75 per cent of the meeting should be focused on future strategy, not past performance… The CEO should be able to trust the rest of the board sufficiently that he / she can come along with half-formed ideas or throw suggestions out for debate so that they can use their expertise to help form the strategy with a clear plan.”
Terry Stannard, Chairman of interior furnishings group Walker Greenback, says: “Many boards would have expected the economic conditions to have improved by now, so it’s absolutely important that strategies are kept up to date with the longer than anticipated lack of growth in our economy, the eurozone and elsewhere. Strategy needs to be continually assessed with the macro environment and the more micro-industry related factors affecting the company.”
Each board will have a slightly different take on this but, at present, not enough executive and non-executive teams are taking the opportunity to get away from short-term targets and challenges to discuss how the business is going to evolve and be even stronger in the years to come.