Amid increasing expectations for boards by investors, employees, regulators and other stakeholders, a rigorous process for board evaluation is more necessary than ever. A
recent PwC survey found that only 29% of C-Suite executives rate their board’s performance as “excellent” or “good,” and 89% say at least one director needs to be replaced.
One way to reset expectations for board performance and reinforce governance generally is to strengthen the board’s annual performance evaluation. A
recent EY survey found that while nearly all (94%) of the Fortune 100 continue to provide disclosure regarding the board evaluation process, the scope of that process has expanded considerably over the past few years. Key findings include:
- Individual Evaluations. Just over half (53%) of Fortune 100 companies now disclose that they conduct individual director evaluations, up from just 24% in 2018. These could include evaluations from peers as well as director self-assessments.
- Disclosing Topics. More than half (57%) of companies also disclose the general topics covered in board evaluations, up from 40% in 2018. For example, companies disclose that board assessment includes the quality and scope of materials, discussions, individual director understanding of the business, strategic foresight and contributions (see the report for a comprehensive list).
- Not Just Annual Anymore. About 23% of Fortune 100 companies seek feedback on an ongoing basis rather than just annually (up from only 9% in 2018). Board performance might be assessed as part of executive session or after a board meeting on an ongoing basis. In addition, more boards are using both interviews and questionnaires to solicit feedback.
- Third-Party Facilitators. About a third (32%) of companies surveyed use a third-party facilitator for board evaluation. This has been a developing trend and can increase candor and transparency in the process as well as ensuring rigor.
To quote the Center’s own Charlie Tharp, in many ways directors are “renting their reputations” when they serve on a company board. As scrutiny of board activities and performance increases, especially on relatively new topics such as ESG, diversity and cybersecurity, a rigorous process for evaluating board performance and identifying areas for improvement and refreshment is critical.
