A company's board of directors is the guiding force behind its management and strategy and makes decisions based on the interests of the company's shareholders. Because it has such an impact on the overall success of the company, ensuring that the board is operating efficiently, effectively, and within its bylaws is important. To do this, a robust board assessment is essential.

What is a Board Assessment?

A board assessment, also known as a board evaluation, is a process used to evaluate the effectiveness and performance of a company's board of directors. The purpose of a board assessment is to identify areas of strength and weakness within the board and to make recommendations for improvement. The assessment typically involves a combination of self-evaluation by the board members, as well as input and feedback from other stakeholders such as management, shareholders, and external experts.

A comprehensive board assessment begins with a review of the company's vision and strategy. A thorough board assessment ensures that the composition of the board is consistent with the strategy and vision. From there, a thorough skill matrix assessment should be performed on existing board members to identify gaps in board capabilities relative to the company's vision and strategy.

What is the process of a Board Assessment?

The process of a board assessment varies depending on the organization, but it generally involves the following steps:

• Establishing an assessment framework: This involves determining the criteria and standards that will be used to evaluate the board's performance, such as corporate governance guidelines and best practices.
• Self-evaluation: Each board member completes a self-evaluation, assessing their own performance and that of their colleagues.
• Surveys and interviews: Surveys and interviews are conducted with other stakeholders, such as management and shareholders, to gather feedback on the board's performance.
• Compiling and analyzing the data: The data from the self-evaluations, surveys, and interviews is compiled and analyzed to identify areas of strength and weakness within the board.
• Report and recommendations: A report is prepared that summarizes the findings and makes recommendations for improvement. This report serves as the roadmap for continuous improvement.

Who conducts a board assessment?

A best practice is a third party assessment. An independent third party has no conflict of interest with the company and provides an objective view. This person should be capable of providing an impartial and unbiased report and recommendations for the board.

Are board assessments required by law?

Companies that are publicly traded on the New York Stock Exchange are required to complete annual board evaluations. For NASDAQ listed and private companies, an annual board assessment is a best practice but is not required by law.

The Benefits of Conducting a Board Assessment

A board assessment can benefit the board and the company in many ways.

1) Improve board effectiveness

A board assessment can help identify areas where the board is performing well, as well as areas where improvement is needed. This can help the board to focus on areas that are most important and make changes to enhance their performance.

2) Enhance transparency and accountability

A board assessment process that involves input and feedback can increase transparency and accountability. By gathering feedback from management, shareholders, and other stakeholders, the board can gain a better understanding of how its performance is perceived by others.

3) Facilitate communication

A board assessment can serve as a catalyst for communication between the board and its stakeholders. This can help build trust and improve the relationships between the different groups.

4) Identify best practices

Board assessments leverage benchmarking and identify best practices and industry standards that the board can adopt to improve its performance.

5) Facilitate compliance

Many industries have regulatory compliance standards related to corporate governance. A board assessment can help a company identify any gaps in compliance and take steps to address them before any issues arise.

6) Improve decision making

A well-functioning board is essential for good decision making. A board assessment can identify any issues that may be hindering the board's decision-making process and make recommendations for improvement.

7) Provide a roadmap for improvement

A good board assessment report should provide clear recommendations for improvement. The board can use this report as a roadmap for enhancing their performance.

8) Promote productive debate

An effective board can debate issues effectively to prevent the trap of groupthink or boards dominated by strong personalities.

9) Establish a baseline for board renewal

An effective board establishes a culture of renewal consistent with the growth of the company. A board assessment helps the board understand and recognize when a director's skill set is no longer consistent with the company's strategy. It can also eliminate the need for age and term limits.

A board assessment is a critical part of corporate governance. The report provided by the assessment provider helps the board identify areas for improvement, enhance their performance, and maintain the trust of their stakeholders.

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