Use Board Reviews To Up Your Director Game

More than a check-the-box exercise, the board assessment can be one of the most powerful tools in your corporate governance arsenal.

As a three-time CEO and serial entrepreneur as well as an experienced director who has served on the second-most public boards in the country, I have seen my fair share of board assessments. The board assessment is sometimes seen as just another routine bureaucratic requirement rather than as a valuable tool for boards to measure the progress on the goals and objectives they have set for themselves. I want to share an overview of the assessment process and the different avenues open to achieve it.

My experience and anecdotal data shows that about 60 percent to 70 percent of assessments of public boards are conducted by either their chair, non-exec chair, lead director, governance chair or the general counsel. The remaining 30 percent to 40 percent of boards that do not use an internal resource have the board assessment done by an independent entity, most likely an outside law firm they have an affiliation or relationship with. I would estimate that of these companies, 80 percent use their law firm. This is a common practice that is widely known and widely accepted.

The purpose of the board assessment is to capture an independent, anonymized summary of key insights that the board feels are important, including business opportunities, concerns, risks, areas for focus/improvement, etc.

The process of conducting a board assessment typically consists of a 45-minute to one-hour phone call with each independent director. The questions are generally bucketed into different categories, such as management (talent pool, strength of the bench, CEO succession), strategy (next key areas, the competitive dynamic), board process (are board members given materials with sufficient time to review, are materials complete), company culture (tone at the top, values, mission, purpose), etc.

When I’ve conducted these assessments as lead director, chair or governance chair, I wouldn’t necessarily follow a scripted list of questions during the phone call. The goal would be to hit upon specific themes, so that directors can share their insights on what would help the board to work more effectively as a team and be a better resource for the shareholders.

Some examples of questions that may spark productive dialogue are:

• What are the real opportunities for the business and what should management look at doing differently/better?

• What are the risks that management needs to spend more time addressing?

• How can management improve its operations?

• How can the board/management be more crisis ready and nimble in the event of a crisis or significant event (e.g., cyber breach, financial restatement, #MeToo)?

My view is that asking open-ended questions and spending 80 percent to 90 percent of your call time listening leads to a good, independent assessment yielding the deepest insights.

At the end of the assessment, the assessor anonymizes the input gathered and creates a summary. Importantly, the summary should have specific recommendations that the board can pursue in terms of action and progress that can be measured and compared year over year.

The goal would be to identify specific, quantifiable action items that can be looked at during the next assessment to determine whether the board has addressed what they collectively identified as important actions.

Some examples of action items that may come out of a board assessment, include:

• The board needs to work on CEO succession planning.

• The board needs to be refreshed with directors who bring expertise in areas such as digital transformation, ESG, new business models, etc.

• The company needs to improve its cost controls, capital allocations, post-merger integration and the board’s visibility into those areas in order to monitor that improvement.

• Compared with competitors, the company needs to augment and add to its product or service offering; it is falling behind.

• The company needs to engage millennial and Gen Z customers, employees, community and investors more purposefully.

When done well and used effectively, the board assessment can be one of the most powerful tools in your corporate governance arsenal to ensure the board is doing the best job possible for its constituencies.