Board Evaluation - Explained
What is a Board of Evaluation?
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Table of ContentsBoard Evaluation DefinitionA Little More on What is Board EvaluationEvaluation ProcessBoard Evaluation QuestionsAcademic Research
Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP
What is a Board Evaluation?
Board Evaluation refers to measures that aid effectiveness, transparency and accountability of board members, especially in the aspect of board governance. Organizations, whether profit or non-profit need to periodically evaluate the board, check their activities in order to be certain that the board is geared towards an effective corporate governance. Evaluating the performance of the board is an important mechanism for scrutinizing the activities of the board and enhancing their transparency and accountability to stakeholders.
How Does a Board Evaluation Work?
Board evaluation is crucial for every company that strives for excellence and coordinated governance. For non-profit organizations, the board may feel incompetent to carry out evaluation or stay without evaluation until the organization is in crisis. However, there are certain ingredients that can gear a board into carrying out evaluation. Most importantly, there must be standards or benchmarks for board evaluation in every organization. The standards that steer a board into an effective board evaluation include;
- The presence of clear and precise job descriptions for the board.
- Availability of corporate strategies.
- Presence of a board chairman and competent senior staff.
- Corporate governance that aligns with the vision of the organization.
Board evaluation and assessment is quite important. The organization or the board does not need to wait for the period of crisis before evaluation takes place. Board evaluation is directly linked to the level of success of results that the organization would record, it is also linked to the performance of the organization. The importance of board Evaluation are; effective corporate management, good organizational results or outcomes, effective financial stewardship, accountable and competent leadership, teamwork, regard for work norms and culture, minimized conflict, positive interaction between stakeholders and employees, among others. One important factor that fuels board evaluation is the desire of owners of founders of an organization to make board members effective and accountable. Board evaluation is important for improved organizational performance.
Board evaluation process involves the assessment of the board in relation to the roles and performances. Areas relating to corporate governance are evaluated by the board while consultants or members of staff evaluate programs and services in an organization. The major areas that evaluation process focus on are; board management, board development, board goals, missions and strategies and senior staff. Evaluating board management include an assessment of board meetings and the evaluation of how individual directors perform in the board as well as their collective performance. When the development of the board is being evaluated, cogent areas are focused on such as governance structure and processes and aid the development of the organization. Quite a number of board evaluation processes exist. Below is a highlight of a six-step evaluation process that an organization can adopt;
- Determine why the evacuation is important, the purpose of the evaluation.
- Select an appropriate evaluation model or structure.
- Get an evaluation design.
- Gather relevant information that will enhance an effective evaluation.
- Analyze the information gathered
- Carry out implementation.
The six processes listed above are essential for board evaluation. In the aspect of analyzing the data gathered, an organization might need the expertise of an independent or external consultant. The results of the analysis alongside other factors would then inform the decision of an organization and the steps to take.
Board Evaluation Questions
Questions are not randomly selected for board evaluation, they are often well-thought out questions aimed at achieving certain purposes in the board evaluation process. Through the use of interviews, questionnaires and surveys, board evaluation questions are prepared. Questions for board evaluation can be derived from this variety; the participation level of board members in board meetings, level of preparation for the meeting, contributions during the meeting, strengths and weaknesses of board members, impacts of decisions made in meetings in the performance of the organization, and the overall success level of the meeting. Usually, board members should undergo periodic self-assessment, the results of the assessment can be kept confidential by the board chairman or the committee for an overall evaluation of the board. During a board evaluation process, there are certain items that will be considered as important aspects of the evacuation. These are;
- Board job descriptions
- How well board members understand their individual roles as members of the board.
- The missions and visions of the board
- How the board executes its missions and achieves its visions.
- Orientation practices in the board
- Recruitment practices
- Risk management policies
- Execution of the organization's plans
- Overall accomplishments and actions responsible for the accomplishments.
- What standards govern the actions of the board of directors?
- Duty of Candor Definition
- Duty of Care (Board of Directors)
- Duty of Loyalty (Directors)
Academic Research on Board Evaluation
- Looking in the mirror: board evaluation, Daily, C. M., & Dalton, D. R. (2003). Journal of Business Strategy, 24(6).
- Corporate board size, composition and corporate failures in retailing industry , Chaganti, R. S., Mahajan, V., & Sharma, S. (1985). Journal of management studies, 22(4), 400-417.
- What makes great boards great, Sonnenfeld, J. A. (2002). Harvard business review, 80(9), 106-113.
- An evaluation of board practices in Brazil, Leal, R. P., & De Oliveira, C. L. (2002). Corporate Governance: The international journal of business in society, 2(3), 21-25.
- Strategy and the board of directors in venture capital-backed firms, Fried, V. H., Bruton, G. D., & Hisrich, R. D. (1998). Journal of business venturing, 13(6), 493-503.
- The strategic board: The changing role of directors in developing and maintaining corporate capability, Ingley, C. B., & Van der Walt, N. T. (2001). Corporate Governance: An International Review, 9(3), 174-185.
- Evaluating boards of directors: what constitutes a good corporate board?, Van den Berghe, L. A., & Levrau, A. (2004). Corporate Governance: an international review, 12(4), 461-478.
- This year's model: Influences on board and director evaluation, Long, T. (2006). Corporate Governance: An International Review, 14(6), 547-557.
- Strategic governance: How to assess board effectiveness in guiding strategy execution, Schmidt, S. L., & Brauer, M. (2006). Corporate Governance: An International Review, 14(1), 13-22.
- Effects of board and ownership structure on corporate R&D strategy, Baysinger, B. D., Kosnik, R. D., & Turk, T. A. (1991). Academy of Management journal, 34(1), 205-214.
- Boards of directors in small and medium-sized industrial firms: examining the effects of the board's working style on board task performance, Gabrielsson, J., & Winlund, H. (2000). Entrepreneurship & Regional Development, 12(4), 311-330.