Board Directors and their Missing Report Cards

A majority of board directors think that at least one of their peers needs to be replaced. But according to a new Korn Ferry survey, a huge swath of companies don’t systematically evaluate the performance of individual directors.

Nearly every S&P 500 firm—489 of them, to be exact—now discloses at least some information about their board-evaluation process, the survey found, but only half say they conduct individual director evaluations. That’s slightly higher than the 48% of firms that said they evaluated individual directors in 2023 but still lower than the 59% that did so in 2022. “There’s room for improvement,” says Anthony Goodman, head of Korn Ferry’s Board Effectiveness practice and co-author of the firm’s Annual State of Board Evaluation in the U.S. 2024.

Korn Ferry, in partnership with the law firm Gibson Dunn, reviewed the latest proxy statements of S&P 500 companies. Among the reporting firms, 44% said they didn’t evaluate individual directors and instead assessed the board and its committees as a whole. About 35% of the firms use third parties to assist with their board evaluations (up from 32% in 2023), although the specifics of that assistance are unclear, Goodman says.

The lack of individual evaluations is particularly surprising in light of earlier surveys in which many directors and senior executives suggested boards should be shaken up. In an April 2024 study from the Conference Board, 92% of executives and 62% of CEOs said that one or more directors on their boards should be replaced. A separate 2024 survey of directors found that 49% think that at least one director—and 25% think at least two directors—on their board should be replaced.

There’s also outside pressure on both boards and CEOs to improve governance. The US has seen a record number of activist-investor actions. Hedge funds and large institutional investors are looking out for firms they believe are underperforming their peer groups; for those that are, board performance is often why. Nothing concentrates the mind of a board more than an activist investor.  

Boards could be holding off on individual evaluations for a few reasons, experts say. For one, if the board has multiple new members, the board chair might want to give them time to get acclimated. In other cases, particularly if the company is struggling or making cuts elsewhere, boards might not want to be seen spending money on evaluations.

Still, individual evaluations can help a board understand whether they have the correct processes and people to best address current and future business challenges. “How are boards looking in terms of best practices and how they govern? That’s something missing,” says Joe Griesedieck, vice chairman and managing director of Korn Ferry’s Board and CEO Services practice.

Board evaluations of some form are a requirement for any public firm listed on the New York Stock Exchange. While the Nasdaq doesn’t require them, many firms disclose that they do evaluations, Goodman says, to demonstrate they’re trying to be well-governed companies. “You can show a serious intent to your shareholders,” he says.

No matter what parts of the board they’re evaluating, self-evaluation is a part of the process at 99% of firms. A little over half, 52%, use a written questionnaire, and 51% conduct interviews.

Board evaluations can be a critical tool for stakeholders. If they’re conducted well—and disclosed—they can show how directors are complying with regulatory requirements, as well as  demonstrating good corporate-governance practices.  Some companies treat evaluations as a check-the-box exercise, Griesedieck says, but top board chairs can make use of good evaluation data to improve board performance. Serious chairs shouldn’t shy away from using individual evaluations, either, he says.

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