One of the biggest decisions to make when embarking on a board performance review is who should be carry out the review? Should it be an internal team or an external provider? These were commonly asked questions in our webinar about board performance reviews on the 26 October. In this blog we will examine the pros and cons of each.
Internal reviewers are of course, the simpler option for any organisation. By turning to a trusted individual or group within the company, your board performance review will not be reliant on external sources. Normally the individual(s) concerned would have a background in either governance or compliance, and this approach brings the benefit of the reviewer already being familiar with the organisation and the sector in which it is operating.
In the webinar, Andrew Fairhurst FCG, noted that internal reviewers are perfect as a way for small organisations to learn the process of a board performance review. The experience of an internal review can help to ensure boards and organisations know what to expect from an external reviewer, when they are ready to engage with one. An internal review can also help to assuage apprehension about the cost and delivered value of the review.
Internal reviews may sometimes be seen as problematic. While the organisation can take steps to ensure that there is as little conflict of interest as possible between the selected internal reviewer and the board, fact that they are colleagues remains. This can have an impact on the degree of openness with which board members and others will respond to the reviewer. It can also mean, especially where there is conflict in the boardroom, that the report is more open to accusations of bias and an internal reviewer might not be as experienced in undertaking a board review as a professional reviewer and so might treat it more as a ‘tick-box’ exercise in compliance and take on a more mechanical nature.
There are also regulatory considerations. For example, the UK Corporate Governance Code and many other governance codes prescribe that the review should be externally facilitated at least every third year. See our Code of Practice for information about reducing conflicts of interest during a board performance review.
External reviewers are often more experienced, having done many board performance reviews in a multitude of organisations and sectors over their careers. This experience will help to give insights into areas where the board can improve; sometimes the best perspective is that of an outsider. Furthermore, an external review is frequently seen by stakeholders as a source of trust and confidence.
The main disadvantage of an external review is sometimes seen as the cost of procurement. But this is usually outweighed by the insights delivered by experienced professionals and, surely, improving the performance of the board is worth at least as much as the organisation would happily spend on consultants in other areas of its business.
There is a less common hybrid model, whereby an internal reviewer might manage the process but consult with an external provider for help on deciding which questions are present in the review and to help streamline the evaluation. This approach can be effective for small organisations, but it is not usually regarded as meeting the test of being externally facilitated.
Ultimately, who carries out the board performance review is down to the size of the organisation and how much it wishes to spend on the process. If you wish to find out more about board performance reviews, we offer both beginner and advanced training courses for those looking to undertake the process alongside a directory of accredited board performance reviewers.