Analyzing emerging trends in board evaluation practices

A closer look at board evaluation practices

The typical board evaluation process for U.S. companies has long been a check-the-box, survey-based exercise — but in recent years, this critical effort has undergone a significant overhaul.

In the past, the corporate secretary generally collected simple and non-anonymous feedback from directors on routine board functions. However, these reports often yielded little improvement in board performance.

Today, board evaluation and assessment is evolving quickly — because organizations realize that an effective board is a strategic asset, not a hurdle to compliance.

Trends impacting the board evaluation model

As corporate governance has evolved in recent years, several key trends have contributed to a shift in approach when it comes to board evaluation.

Board composition, process & performance

First, there has been ever-increasing scrutiny of board composition, processes and performance. Issues such as gender, racial and ethnic diversity have led to a greater focus on underrepresented groups, including the LGBTQ+ community.

Emphasis on human capital management

Other areas of concern include ESG issues that affect a wide range of industries — with a renewed emphasis on human capital management and DE&I priorities.

Increasingly detailed rules and policies have created a need for the prescription of governance requirements in order to prevent over-boarding, while digitalization continues to have even greater implications for competitive advantage and board composition.

Taken together, the role of a corporate board director today is more challenging than ever. That's why a robust board evaluation process can provide an opportunity for reflection — and a valuable chance to raise the bar on board performance.

What makes a board evaluation effective?

For decades, corporate boards tended to evaluate themselves solely on the effectiveness of their structure and processes. But today, the focus has shifted to who exactly sits at the table — and for how long. Boards want to ensure they are more diverse and inclusive while striking the right relationship with management.

These types of questions and challenges cannot be adequately addressed with a traditional annual survey, but rather board leaders must engage directly with each board member and build on the candid give-and-take that comes with transparent and constructive feedback.

Board directors may discover certain ineffective processes, but it can be difficult to identify the root causes of these issues from the inside. That's why an external perspective can also be helpful during the board evaluation process.

Identifying the goals of a successful board evaluation

The heart of every successful board evaluation is human. Whether conducted by the board leadership or by an external advisor, it is the trusted connection between people that generates the deepest and most valuable insights.

The board evaluation process should always protect confidentiality as much as possible in order to inspire real candor and transparency. Once feedback has been collected, all conclusions should be aggregated into a digestible report — each with an accompanying recommendation that is both specific and actionable.

Board leaders — including the CEO — should review the conclusions of the board evaluation and align around several key recommendations to prioritize. Having a solid action plan is critical, complete with target timeframes, task owners and progress updates.

Understanding the importance of board evaluation disclosure

Disclosure of the board evaluation process lets investors know the board takes continuous improvement seriously going forward. Whether using a third-party advisor, sharing key takeaways and areas for improvement, or providing updates from prior board evaluations, this level of disclosure and transparency helps put all stakeholders on the same page.

Of the 236 companies surveyed by Korn Ferry regarding their board evaluation processes, 61% disclosed the leading topics in their board evaluations — with the three most common being board/committee structure and responsibilities, board/committee skills and composition, and board/committee culture, dynamics, functioning and operations.

Yet only 21% disclosed the changes they made following their latest board evaluations. These changes included updates to board and committee structures, responsibilities, agendas and materials, as well as board succession planning and refreshment.

The 4 Ps of board effectiveness

At Korn Ferry, we've identified four vital components of board leadership that contribute directly to greater board effectiveness and sustainable value creation. We believe that boards work most effectively when there is alignment between their purpose, process and structure, people, and approach to partnership.

Purpose — what the board focuses on

• Company Purpose
• Board Role
• Strategy and Risk Alignment
• CEO Succession Planning
• Sustainability/ESG/ HCM Oversight
• Corporate Governance and ESG Disclosure Review
  

Process and Structure — how work gets done

• In-person and Virtual Meetings
• Agendas and Charters
• Committee Structure
• Information Flow
• Meeting Materials

People — who sits at the table

• Board Leadership Roles and Succession
• Longer-term Board Succession Planning
• Individual Director Contribution and Peer Review
• Board Diversity
• Board Education
• Onboarding and Off-boarding

Partnership — building culture and relationships

• Board Leadership Coaching
• Board Relationship with Management
• Board Culture and Dynamics
• Board Inclusion
• Stakeholder Relationships

To learn more about Korn Ferry's recent survey on the emerging trends in board evaluation practices, contact us here.