Successful Board Assessment Models

Oct 292008

Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com

Most of my engagements with boards begin with a full board assessment. In a large percentage of the cases, the board has never run an assessment. It is important that boards routinely conduct performance assessment of their CEO and senior corporate management. However, self-assessment is just as important. Sarbanes-Oxley requires boards to conduct self-assessments and to plan for succession. The depth and the design of the self-assessment and commitment the board has to enhancing performance will determine if the assessment is an exercise to meet a requirement or a true attempt to address issues impeding performance. In my view, compliance is a necessity but performance is the most important factor by far.

One important focus of any board assessment is the balanced composition of its members. Balanced board composition is critical to the success of every venture an organization undertakes. A board with appropriately experienced directors committed to leadership development will undertake an assessment that thoroughly examines both the function and interaction of the directors and the manner the board approaches issues. An in-depth assessment will not just touch the surface issues of board of directors meeting attendance or committee meeting attendance, but will dig to deeper issues of discussion participation and problem solving.

Another important issue in any assessment is management of the assessment. Boards will often engage a third party to facilitate at least part of the assessment. In my view and given the relatively low expense level involved, management by a completely independent organization is critical to assessment accuracy. This allows for some independence in dissecting the information and objectively observing how directors interact in stressful situations. A trained third party advisor will ask open-ended questions and allow issue discussion among directors. Many assessment programs are primarily on-line affairs with follow-up interviews. Most assessments require one or two business weeks. The data analysis may take about the same time with results presented shortly thereafter.

The assessment process should begin a process rather than being an end in itself. The third party adviser will generally report on their findings back to the full board and offer suggestions for improvements and possibly offer suggestions for future discussions by the board. He will also facilitate the subsequent discussions. The meeting for presentation of findings should allow plenty of time for interaction among directors. The Chairman should take a lead role in guiding these discussions. Directors will often question each other’s opinions regarding issues highlighted by the assessment. Other data results – for example, events during the preceding year which have affected board performance, resourcing and balance. These discussions build on the baseline data provided by the assessment and help the board develop an action plan. The group sessions work well when all board members are strong and comfortable in voicing dissension, but it also works well to point out directors who are weak and may not be suited for a chair at the board of director’s table.

Surveys are an important part of any assessment – and of any ongoing monitoring program. An effective assessment method, they are commonly employed on a scheduled basis. They have a core of issues at their focus but have the flexibility of adding additional items. Surveys are very easy to conduct and require little time from the respondents. Surveys can focus sharply on a single set of issues or cover a broad range. For instance, the design of leadership development programs are – an independent adviser can conduct a survey on leadership development needs and report the findings to the board. This baseline will allow the board to build a curriculum around the results. Board members tend to like surveys because they are easy and results are easily quantifiable. People are comfortable filling out surveys in private, and the survey is impersonal and does not require any substance be given for the choices made on the survey. Surveys can and do point to specific problems, but a survey is limited by not easily conveying any solutions.

Good assessment programs are multidimensional. This is particularly true in both the collection and presentation of data. However, it is also true when it come to the contextualization of the assessment proper into the overall program that the board develops for improving its effectiveness. A good program run my an independent adviser is a combination of surveys followed up by a group discussions facilitated by the adviser. A trained adviser can work around leadership styles, assess personal growth and management ability, and defuse situations threatening the productiveness of a group meeting. A good facilitator will come prepared to address issues uncovered by the written survey, have the ability to dig into deeper underlying issues that arise during the session.

A well-rounded assessment program will also have educational events to help directors understand the process and think more clearly about some of the issues being assessed. One way to advance this part of the process is to have a series of speakers focus on important issues. Issues such as director liability, responsibility, authority, ethics and more can be covered. The better educated directors are on these critical issues, the better they will be able to fulfill their fiduciary responsibility to the shareholders – and the better able to protect their own interests in the process.

As with any assessment process, the management of feedback is important. A good rule for all boards to follow before beginning any type assessment is to agree on a method for feedback. Feedback is a critical factor in making corrections to any impediments to board effectiveness. Decide how the feedback will be delivered and by whom. The most effective feedback methods involves the initial report from the group session followed up by a second group session to allow directors to discuss the results after having a chance to review each issue.

The delivery of the results of board assessments can produce some tense situations. Often they bring on anxiety among members of. Professional governance requires boards to conduct assessments. The board’s commitment to improvement, personal growth and leadership development will determine the depth and model of the assessment conducted.

With limited exception, I have found that directors welcome the assessment process – particularly since Sarbanes-Oxley and the heightened focus on director’s liability and responsibility. Most of the assessments result in minor adjustments in focus, operations and resourcing. Sometimes major shifts are indicated and I have had to spend some time helping the board manage them. Very occasionally, assessments point out the need to pretty much start all over. Although these are rare, they are situations in which the interests of the shareholders are being poorly served by the current board – and the current directors are incurring significant liabilities because of that face – a serious matter in the current environment.

If you are interested in learning more about board assessment process, send me an e-mail and we will arrange a time to talk.

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