Evaluating the BoardWith ever increasing regulation and the relentless scrutiny from the media, organisations have never faced so much pressure to ensure they are operating diligently, transparently and to their full potential.

Boards failing to adequately monitor the level of risk to which their organisation was exposed and other corporate governance failures have highlighted the critical importance of regular monitoring and the need for reviews of board performance.

The board is the ultimate governing body and sets “the tone with from the top” in terms of values and culture. Boards must balance their role however, ensuring they not only oversee and direct the affairs of the organisation, but also to meet the appropriate interests of their shareholders. If the board is not performing effectively, it can leave the entire organisation vulnerable to an array of threats.

Effective Evaluation

The UK Corporate Governance Code means listed companies face annual board evaluation as standard. The Central Bank of Ireland has since adopted this as a statutory requirement for institutions regulated under its Corporate Governance Code. In addition, both Codes call for an external evaluation of the board every three years.

Regularly reviewing the performance of the board by external evaluation makes sound business sense for all organisations. Evaluating performance can be of real benefit to determine and improve practices and procedures, identifying weaknesses and areas where the board is performing effectively.  More and more businesses throughout Ireland recognise it as a powerful investment in their future, sending a strong message to regulators, investors and employees alike on their commitment to ongoing good governance.

Commenting, Maura Quinn, Chief Executive of the Institute of Directors Ireland said “Undergoing a comprehensive board performance evaluation enables a company to provide assurance to stakeholders and to potential investors that it is committed to the highest standards of governance and probity; this is of particular importance in light of the governance failings we have seen in some organisations in recent years. Identifying strengths and weaknesses is the first step to improving board performance and once a board knows where its strengths and weaknesses lie, only then can it begin to build on them or to tackle them.”

What to look for

The evaluation should concentrate on everything from assessing the board’s performance in relation to the business strategy, to assessing risk management, internal control and stakeholder management, to analysing the composition and practice of the board and evaluating the performance of committees and individual directors.

An internal evaluation alone may not provide the board with assurance that it is performing effectively,

Undertaking an external board evaluation enables directors to benchmark how well the board is operating against industry best practice and against the processes associated with high performing boards. Opting for an external experienced evaluator would greatly increase transparency and independence, bringing specialist know-how to the process.  An independent evaluator is also likely to be far less constrained and objective when reporting findings and identifying issues that may need to be addressed. The involvement of an independent external assessor also provides greater assurances to stakeholders that the evaluation was both rigorous and objective.

The whole board should be involved in reviewing the outcomes of the report, which will acknowledge the board’s strengths and identify any weaknesses to be tackled. The evaluation will also raise any varying opinions among directors, thus enabling the board to address and resolve any differences.

As leading contributors to the debate on corporate governance, the Institute of Directors in Ireland (IoD) has detailed knowledge of what makes an effective board and provides a tailor-made evaluation service, offering boards a range of options to choose from. The IoD has a panel of evaluators who are all experienced directors themselves and are all Chartered Directors, thus combining both a wide range of practical hands-on experience as a director with the highest levels of knowledge and expertise of best practice. 

By Maura Quinn - Chief Executive at the Institute of Directors in Ireland.