The purpose of a Board evaluation is to identify opportunities for improving governance effectiveness. Governance is oversight of the organization. More effective governance means more effective oversight. Here’s what to expect from an external Board evaluation that helps improve governance effectiveness.
1. A measure of how well the Board understands its governance role.
To be effective, Boards and Directors need to understand what the Board’s role is. There are three elements of governance oversight: 1) identification of risk 2) validation and approval of strategic direction 3) performance management of the CEO responsible for executing the strategic plan.
A professional Board evaluation measures how well Directors understand this role. Generally, we find that Directors on a governance Board understand that their role is oversight. However, we also find that many Directors are confused about what they need to focus on in order to provide effective oversight. For example, the majority of governance failures occur because Board’s fail to identify and mitigate a key risk. Yet, most Board evaluations show that many Directors have little or no understanding of what the key risks are and how to oversee them.
A helpful Board evaluation will clarify this lack of understanding and provide recommendations for making it better.
2. A set of measures of the Board’s operation and how well it is executing its governance role.
There are five key elements of Board execution.
Board and Committee leadership
A professional Board evaluation evaluates the effectiveness of each element in terms of executing the Board’s role. For example, it’s common to find that Board composition (who’s on the Board) is not consistent with the risks the organization is facing and the strategies it is executing. It’s also common to find a common Board process – Board meetings – have significant opportunities to be more effective.
By measuring the effectiveness of these elements and identifying opportunities for improvement, helpful Board evaluations make it easy for Boards to quickly improve their governance effectiveness.
Some quick insight on conducting a Board self-evaluation
Keeping in mind the number, size and sophistication of Boards out there, it is still common for most Boards to self-evaluate their effectiveness. Although this is logical, we advise caution in terms of outcomes. Boards who self-evaluate almost always over-rate their effectiveness. There are many reasons for this – but ultimately, it’s just simply more difficult to be objective in a self-evaluation. And although it is easy to argue that any Board evaluation is better than no evaluation, the problem with over-rating governance effectiveness is it frequently leaves little room – or motivation – for improvement.
Summary on what to expect from an external Board evaluation
Every Board we work with has opportunities to improve governance effectiveness – frequently starting with understanding the Board’s role. A helpful Board evaluation will measure how effective the Board is, and what the opportunities are for becoming even more effective.