There are several different terms for the process by which boards are examined for their effectiveness. The two most common terms are board evaluation and board performance review. There is no difference between the terms and the myriad of others such as board effectiveness review etc. However, the Chartered Governance Institute of the UK and Ireland maintains the view that ‘board performance review’ is the most accurate terminology. The following article will outline why this is the case.
What is a board evaluation or board performance review?
A board performance review is the method by which the decision making, effectiveness and relationships of a board are assessed by an appointed evaluator. The primary reason for undergoing regular board performance reviews is to help the board continuously improve its own performance and thus that of the company. The review process helps to identify the strengths and weaknesses of the board so that appropriate action can be taken.
Why is board performance review a more appropriate term?
When the Institute first began to consult with the industry about the form and function of board performance reviews, it quickly became apparent that there were two competing schools of thought as to their purpose.
The first was to ask the question: is the board performing effectively? This could be answered in either absolute or relative terms, by reviewing the board in retrospect. Ultimately the answer to the above question would be used to determine the future effectiveness of the board. A board that has performed well in the past is likely to continue performing well into the future, assuring shareholders of its future success.
The second school of thought is that the evaluation should serve a process of continual self-improvement. This style provides reassurance to shareholders that the board demonstrates a willingness to adapt and act on the discoveries found by the review. This mindset demonstrates that the board takes its responsibilities seriously and wishes to carry out its duties in the most effective manner.
The Institute leans heavily towards the latter school of thought, in that the process should be focused on continual future development rather than simply trying to determine whether the board is effective or not. This view was shared by the majority of those who contributed to the consultation. It is for this reason that the term board performance review is preferred, since it more accurately reflects the holistic nature of good practice board reviews.
A board evaluation meanwhile is a more simplistic approach that simply looks at previous performance to speculate on future potential. Furthermore, it was determined in the report that respondents felt that the word ‘evaluation’ meant that there was an objective criterion by which boards could be assessed. This is simply not the case. There are vast differences between boards across organisations and it would not be fair to judge them based on a single methodology.
If you are interested in finding out more about the work CGIUKI has been undertaking around board performance reviews, we have a wide variety of resources and training courses, as well as a directory of accredited board performance reviewers.
