Why board evaluation is important in corporate governance efficiency
Corporate governance has attained widespread importance over the last few decades due to fraud and scandals around the world.
It is against this backdrop that labour movements have petitioned governments to make it mandatory for companies to implement corporate governance with strict and consistent board evaluation.
However, adopting corporate governance is one thing; implementing board evaluation for efficiency is something else altogether.
Board evaluation is a formal and independent process that reviews board performance over a period. Good practice requires a board evaluation to be carried out at least once every two years.
Evaluation is normally carried out at the board level, that is, board performance is reviewed as a whole, and for each individual board member level as well as board committees.
At the board level, the objective is to determine effectiveness and performance of the board. The evaluation will consider among others: board’s understanding of its roles and responsibilities, alignment of the board to the strategy of the organization, quality of board meetings and implementation of board resolutions.
At the individual board member level, evaluation considers, broadly, individual board member’s performance in terms of contribution to the board agenda, quality of contribution during meetings and the members proactiveness in performing activities of the board.
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For the committee level, the evaluation focuses broadly on the performance of board teams in line with their mandate and charter.
The evaluation can be done internally or externally. External evaluation involves hiring or recruiting an independent consultant to carry out the exercise. Whatever method is adopted, it’s important that the exercise should be done in an independent manner, and the feedback ought be managed properly.
The board should be given feedback, likewise to individual board members and committees. The chairman of the board plays a significant role in the feedback process working with the evaluator, to ensure feedback is given so that areas of development are closely monitored and implemented accordingly.
Consistent board evaluation will help paint a meaningful picture of board activities in the day-to-day running of the organization as well as identify their most important performance strengths and weaknesses.
This will be key in analyzing internal strengths for the organization to leverage on as well as identify weaknesses for necessary adjustments.
Understanding of its operations is an important ingredient of dispensing their duties. Strategic evaluation and helping the various components understand the core goals and objectives creates a common understanding of governance.
In the long run, this will help nurture a culture of collective responsibility on accountability and problem solving.
Multiple studies and surveys across various organizations have shown that objective evaluation makes it possible for members to become more familiar with their roles. As such, greater attention will be given to strategic goals and cut down on the time spent on unimportant matters.
It’s important for board members to distinguish their roles and responsibilities from that of the management. This is a common ground for conflict between the board and management and should be a continuous area of emphasis during board meetings, induction and continuous development programme. Because if not checked and dealt with appropriately, can derail the functions of the board and management.
Board members are required to provide oversight and strategic direction to the organization whilst management deals with daily implementation activities of the organization. It’s important to distinguish the roles, and at the same time ensure that opportunities for collaborations at both levels are fully tapped.
Evaluation and frequent communication between the board and the management team, for example, will help avert multiple crises and potential conflicts in the day-to-day functions of the organization.
Board evaluation is key to efficient corporate governance and firm. Consistent evaluation makes it easier for improved quality of management follow-up and has a positive influence on the overall performance of the firm. For increased efficiency in the current world, it is a necessity to invest in board evaluation; be it internal or external, or both.
Opinion: The author, Dr Benson Okundi, is the Government and Public Sector Leader, PwC, East Market Area
