Board performance reviews, also known as board evaluations, have become a key tool for measuring the effectiveness of the board of an organisation. A well-conducted board performance review will examine the structures, processes and output of the board of directors and its members. In this blog, we will lay out good practice tips for those looking to undergo a review.
Independence
Selecting who will carry out the work is the first step in any board performance review. This decision should not be made by a singular person. Instead a nomination committee should be formed, the Financial Reporting Council’s guidance provides more information on this. Decision-making by the committee will help to identify any potential conflicts of interest, which could ultimately invalidate the findings of the review.
Conflicts of interest could include either personal or commercial relationships between the reviewer and any member of the board of directors. If there is a conflict of interest, this should be fully disclosed within the annual report with an explanation as to why the reviewer was still a valid provider, and the conflicted members should recuse themselves from the nomination committee.
Those in charge of the selection process for the procurement of a board performance review should not go with the same reviewer for more than six years or two full reviews, whichever is shorter. If the relationship exceeds this limit, the annual report should explain in detail how the provider will maintain its independence to safeguard the objectivity of the report.
Clear expectations
A clear scope of work must be laid out. This provides clarity around the criteria against which boards are being assessed and helps to demonstrate the transparency of the review to both internal and external stakeholders. From this point, processes can be worked out and agreed upon on a case-by-case basis.
When undergoing a board performance review, the reviewers must have the ability to meet with the board of directors as a collective, as well as individually. Access to board papers, board committees and management, and the opportunity to meet with other internal and external stakeholders might also be required as part of the scope.
After the review has been completed, reviewers must be given the opportunity to present their findings directly to the full board and to discuss outcomes and future actions with them.
Finally, throughout the entire process, the company should appoint a contact to whom the reviewer can speak in confidence about any concerns they have regarding the way the process is being managed. During most board performance reviews, the contact is one of the independent board members.
Transparency
After the board performance review has taken place, the company needs to be transparent about the findings. Where an external reviewer has been used, the company should provide the reviewer with an opportunity to comment on any description of the process and the findings contained in the annual report or other disclosures, and agree any opinions attributed to the reviewer. The annual report should state whether this has been the case and, if not, explain why.
If you are interested in finding out more about board performance review, The Chartered Governance Institute UK and Ireland has released a Code of Practice, Principles of Good Practice and guidance on reporting. The Institute also has a directory of accredited board performance reviewers, alongside a suite of training courses.
Sign up to our introductory webinar to board performance reviews, taking place on 26 October.
