The imperative is clear – the question is no longer WILL your board evaluate, but HOW will you evaluate.
Recent Royal Commissions in banking, education and other institutions have led ASX to revise their Corporate Governance Principles to recommend board and director evaluation and development take place annually across all sectors to support good governance.
But which evaluation method is best suited to your needs?
A quick google search will return a multitude of methods by which an organisation may evaluate its board and director performance. Governance Evaluator takes a look at the pros and cons of the most popular evaluation options to help you make an informed decision for your organisation.
1. Free surveys & tools
Many organisations with very early governance maturity, or with very limited resources, may choose to ‘dip their toe’ into evaluation via an internally sourced and managed survey. Resource hubs such as VCOSS and ourcommunity.com.au offer free of charge quizzes and fact sheets that give boards a good initial overview of their level of functioning.
Pros: Suits the smallest budget. Provides a general overview of collective governance performance. Fact sheets may provide information about areas for development. Tackles the initial issue of ‘not knowing what you don’t know’.
Cons: Content of questions and resources generic and basic, not tailored for specific industries or addressing specific issues. Can be cumbersome to complete and report upon. Lacks an external perspective. Can be time consuming to compile responses and turn into useful data for decisions about future actions. Provides no ongoing trending or benchmarking.
2. Internal forums
Similarly, boards at an early level of governance maturity may decide to hold a board discussion where a group consensus is sought in relation to the board’s performance on key governance requirements. At this or a subsequent session, the board would agree on actions to address issues raised.
Pros: Can be completed in a short period of time. Does not require additional investment other than time. Helps the board go from not knowing what they don’t know, to identifying as a team what the issues are; ie ‘knowing what they don’t know’.
Cons: Discussion & actions can be skewed by more influential participants. Lacks an external perspective. Focuses on collective board performance and does not address individual director skills and experience.
3. External consultants
Some more mature boards may engage an external consultant to manage the evaluation and development process from end to end, or facilitate specific milestones throughout the process. Consultants may be governance experts or industry experts, but ideally would be both. Consultants provide a guiding hand for boards who know they need to evaluate, but are limited by experience or time to manage the process themselves. Peak bodies are a good source for recommending consultants who have experience in the industry. Governance Evaluator is proud to offer independent consultants as a supplement to our board and director evaluation processes.
Pros: An external perspective of governance performance against relevant legislation and frameworks. Adds rigour and reduces subjectivity of the process. Expert guidance to enable the board to move beyond evaluation and into targeted capability building & development. Can assist the board to go from ‘not knowing what they don’t know’, to ‘knowing what they don’t know’, to developing strategies to address the identified issues.
Cons: Can be expensive. Can be labour intensive. In some instances, the board may be left to write an action plan themselves, or are left with a generic action plan that is relegated to the bottom drawer until next year.
4. Self-assessment
Self-assessment is recognised by Aon, ASX, DHHS and AICD as well as peak bodies in health & age services (LASA, VHA, ACHG, AHHA), community (ACNC) and education (NESA) as a sound method for understanding and improving a board’s performance, as well as the skills and experience of individual directors.
Some online tools available offer flexibility and ease of data collation and analysis. In addition, some tools can tailor their content to the specific requirements of board’s sector, and provide data and insights for boards to trend and benchmark their performance historically, as well as against others in their sector and across industries.
Care must be taken to ensure that the self-assessment tool avoids the influence of subjectivity. This can be achieved through careful questionnaire design and analysis. To find out more about how leading self-assessment techniques achieve this, click here.
Outputs of the self-assessment inform actions to build board capabilities where they are needed most. Governance Evaluator is founded on effective online self-assessment of board and individual director performance.
Pros: Affordable. Can be managed internally if desired. Outputs enable the board to move beyond evaluation and into targeted capability building & development for the collective board as well as individual directors.
Cons: Requires engagement in the process by board members. Can be subjective, unless it is part of a multi-faceted evaluation & capacity building process.
As you can see, there are options available to suit all levels of governance maturity and investment capabilities. To discuss the best board evaluation and development program for your board, book in for a 15-minute governance health check below.