We all know that the expectations placed on Boards has escalated hugely over the last decade. The Boards of today are almost unrecognisable from the Boards we knew then. Often now purely skills based, mostly paid, and – supporting this professionalism – robustly appraised…. or are they?
The Chair sets the tone from the top.
As a starter, the NHF states the evaluation of a Board should consider:
- the balance of skills, experience, independence and knowledge of the company on the board
- its diversity, including gender
- how the board works together as a unit
- other factors relevant to its effectiveness.
There is an expectation that individual evaluation shows whether each NED continues to contribute effectively and whether they can demonstrate commitment to the role (including the time for meetings and any other duties).
The board is also expected to state in the annual report how performance evaluation of the board, its committees and its individual directors has been conducted.
With this comes an increased expectation on the Chair to ensure that robust and purposeful processes are in place to NEDs as individuals and the Board as a whole, and this can be a big ask.
So, how can Chairs approach this in a constructive and purposeful way?
Here are some key steps that Chairs should take to ensure that the governance structures and the individuals within it are appropriately appraised, supported and held to account:
- Agree a programme of review with the Board – this should ideally include annual individual appraisal of each NED including Committee Members – there is a growing trend of independent members sitting on Committees who don’t sit on the main Board so don’t let them slip through the net. Also include a 360-degree process on yourself as Chair.
- Ensure that individual appraisal processes are well understood and include a self-assessment element where NEDs assess themselves against a clear and agreed set of criteria. This goes for the Chair too. This needs to include evidenced justification for individual’s scores and an opportunity to outline any development needs or areas where they would like to do more. The assessment criteria must read across to Board or Committee Skills and Competencies matrix’s documents and the organisational objectives. It should pick on any development objectives agreed at the previous year’s process.
- Allow sufficient time. Ensure all members have ample notice of the process, ideally 3-4 weeks, and understand its purpose and what it involves. Keep documentation simple.
- Annual appraisals of individuals can be led internally by the Chair if they are experienced and robust in their approach, apart from every three years when it is expected that the process is externally led. There are other occasions where external independent support can oil the wheels and ensure that processes are effectively implemented. This can often be when the Board has a new and/or inexperienced Chair who has little experience of appraising others, the organisation has introduced a new appraisal process, or perhaps the organisation predicts some challenging conversations with some NEDs. Seeking the assistance of an experienced independent advisor can help keep appraisals focused and ensure issues are tacked effectively yet diplomatically.
- The UK Governance Code recommends that FTSE 350 companies have externally‐facilitated board evaluations at least every three years. This is echoed in the Federation’s 2015 code of governance which dedicates a section to board skills, renewal and review.
- Individual appraisal reports should be written up as soon as possible and shared with the appraisee so that they can check its accuracy and agree the objectives. This can be completed by the Chair, or some organisations use the Company Secretary or governance lead to manage the administration here and ensure that it feeds into future individual and board/committee development plans.
- You want to understand where a NED feels they need to develop (what the gaps are in knowledge or experience), where they would like to learn more, and what their ambitions are for the future e.g. wishing to Chair a Committee. It’s about looking forward as much as backwards.
- Ensure that a full report is provided to the Board. Clear objectives need to be outlined for individual NEDs and the Board as a collective. These should be reviewed and reported on at agreed points in the year to ensure they are effectively progressed. The Chair should introduce follow-up items on subsequent agendas to support this.
Overall Chairs have a real task on their hands in ensuring that robust appraisal processes take place and are followed through. But forward planning and internal support to administer the process can help lighten the load and result in effective, enjoyable governance.
EMA wishes to thank Michelle Hallmark from Creative Bridge for her assistance with this article