The board, its composition and evaluation of performance is central to corporate governance. Increased scrutiny by the regulator has recently focused on the activities of the Board and its committees, issuing over 65 governance rulings following downgrades over the last 40 month or so. Many of the downgrades have been due to the regulator recognising where boards do not have a robust grip on the business, or a thorough understanding of the expectations placed on the organisation or them as a Board. Risk, effective financial management, breech of the Code of Governance, lack of the appropriate skills on the board, and lack of board review have all been cited as reasons for downgrades.
All Boards, and their committees, benefit from regular independent evaluations, in particular subsidiary Boards or committees are often training grounds for main company Boards and getting into good governance practices at subsidiary and committee level can pay dividends later on.
Board evaluations can bring tremendous benefits and a properly conducted evaluation can contribute significantly to performance improvements on three levels: organisational; Board and individual member level.
One of the main goals of Board evaluation is to enable Boards to purposefully identify and surmount the barriers that impede their effectiveness. Establishing an effective process for Board evaluation can send a positive signal that Board members are committed to doing their best and are prepared to undergo detailed scrutiny in the endeavor to be the best that they can be.
The NHF Code of Governance, which has been adopted by the majority of registered providers, states that:
“Governance is about organisational vision, mission, clarity of purpose and effectiveness. As such, good governance enhances organisational reputation, and ensures better results are achieved”.
An effective Board provides the organisational vision, mission, clarity of purpose and effectiveness essential for good governance and leadership by:
- Understanding its role
- Ensuring delivery of the organisation’s objectives
- Working effectively individually and as a team
- Exercising effective control
- Acting with integrity
- Being open and accountable
To ensure that the Board is meeting these objectives it is important that regular robust reviews take place to consider the roll and effectiveness of the Board as a collective of individual Board members.
This can take a number of forms including individual Board member appraisal, collective appraisal of the Board as a whole, Board observation exercises and more thorough governance reviews, with many organisations choosing an approach that uses a number of these methods over a period of time to help assess the Boards performance in a number of different ways. Many Boards find that although they have been successful in attracting some high performing Board members, collectively their performance can be lacking, and experience shows that a successful Board is not guaranteed by just bringing together successful people.
Most organisations choose to use an external independent consultant to perform this role and the benefits of this include; capitalising on their expertise in Board responsibilities; independent objectivity; and anonymity for Board members. The filter provided by the consultant ensures that the qualitative views of Board members are balanced and anonymised, enabling them to give a much truer assessment of the Board’s strengths and weaknesses and a steer as to how to improve. It also demonstrates to the regulator that the organisation is aware of the benefits of independent review and is open to constructive criticism with the objective of improving and strengthening the governance of their business.
If a Board appraisal is to be a meaningful exercise which delivers value to the organisation and avoids being a tick-box compliance exercise for compliance’ sake, it should be carried out by a trusted independent external consultant, and EMA is able to offer a wide range of tailored review processes for their clients to help them meet their needs.