Appendix A: Evaluating the Performance of Boards and Board Members
Throughout our report, we discuss aspects of monitoring performance. In this appendix, we outline three elements of evaluating the performance of boards and board members:
- the benefits of formal performance evaluation;
- the principles of good practice in evaluating performance; and
- an evaluation process to use.
Further advice and guidance on performance evaluation can be obtained from the Institute of Directors and personnel consultants.
The benefits of formal performance evaluation include:
- providing feedback to individual directors;
- identifying directors’ training and development needs;
- reducing the risk to the shareholder that directors or the board as a whole will under-perform;
- providing input into the director selection process;
- identifying the special attributes of directors;
- identifying opportunities for experienced directors to support new appointees;
- reinforcing the accountability of the chairperson for the effective performance of the board; and
- identifying any skill gaps in the composition of the board.
Principles of good practice in evaluating performance are that:
- it should be undertaken regularly, preferably each year;
- a formal method provides an objective framework for evaluation;
- director peer review is consistent with the self-appraisal principle whereby professionals monitor their own performance; and
- confidentiality should be observed to allow for the free expression of views.
Steps in an evaluation process begin with the board assessing its own performance in relation to its key responsibilities. These responsibilities include:
- communicating with shareholders and meeting their expectations;
- managing relationships with stakeholders;
- balancing the mix of skills on the board;
- strategic planning;
- discharging legal and ethical obligations;
- monitoring company performance;
- maintaining relationships with management; and
- meeting regularly and ensuring the proper conduct of board meetings.
Each director should assess the performance of the chairperson against a checklist of the chairperson’s duties. Directors should also evaluate their own performance against stated attributes, and individually have an interview with the chairperson.
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