Publications & Resources

November/December 2008
Focus: Directors Issues

Director Assessment: New Standards for a High Performing Director

By Geri Forehand, CPCM

In two cases, banks are required to perform director assessments. First, if your bank is listed as a New York Stock Exchange Company, and second, if the bank is operating under regulatory order. For the moment, let’s assume we are not a NYSE firm and we are not under a regulatory order. Should we evaluate the performance of the board?

Let’s look at some key research. In 2007, Heidrick and Struggles and the Center for Effective Organizations at the University of Southern California ’s Marshall School of Business surveyed 660 of the largest 2,000 publicly traded companies in the United States . 95% of the directors rate their boards as either effective or very effective overall. In the same survey, only 20% of the directors are seen as effective by the CEOs responding to the survey.

Why the difference of opinion?

In our experience evaluating board performance we have found different expectations. CEOs want directors who don’t get involved in the day to day running of the business, yet many board meetings delve deeply into minutiae and create an air of “micromanagement.” CEOs want directors who offer a strategic sounding board for management, yet board meetings do not spend quality time on strategic discussions. CEOs want all of their directors to bring their wisdom and experience to the company, yet many board meetings are dominated by a few individuals. What can be done to improve the perceived lack of effectiveness? We believe the solution begins with a board evaluation.

Consider the goals of evaluating the board of directors. The bank wants to

  • Improve the board so there will be better alignment with the strategic plan
  • Improve the ability of the board to serve and support the CEO
  • Improve the composition of the board

A well thought-out and executed board evaluation process should prove beneficial to even the best run boards, reinforcing roles and responsibilities and giving directors a regular opportunity to reassess their own resources and how they are allocated.

A very small number of bank boards have mechanisms for explicitly evaluating how the board interacts with the CEO and the leadership team. Board members need feedback not only about how well they do their committee work, but also how much they genuinely help the CEO and leadership team advance the interests of the company.

The purpose of evaluating the board is not to create a pass/fail “test,” but to ensure that the overall board has skills and experience that align with the challenges facing the organization. When evaluating the understanding and performance of the board of directors you should

  • Provide insight into the director’s understanding of the strategic planning process as well as the desired levels of inclusion
  • Measure the board’s understanding of the organization’s goals and objectives, and provide insight as to how director’s feel about them
  • Measure understanding of policies and procedures and the reasoning behind them
  • Provide insight into the director’s understanding of the financial positioning of the bank
  • Identify the diversity of the directors’ expertise and opportunities for further development
  • Measure communication and information flow within the organization
  • Provide insight into the board’s external and bank-wide relationships
  • Provide insight into inter-board relationships and strengths

There are three primary approaches to board evaluation: survey, interviews and group evaluation.

Surveys. The process must be statistically valid. Objective criteria are converted into objective behavioral measurements geared to illuminate the actual behavior of the board in critical areas.

Interviews. Interviews of the board are often used to gain an understanding of the issues on the directors’ minds. Typically, an outside facilitator interviews directors individually using a structured questionnaire. Based on the results of the interviews a narrative report is presented that focuses on key areas for board improvement.

Group Evaluation. During a group evaluation, a trained facilitator engages the board and the CEO in interactive discussions. The discussion focuses on how a board can improve its performance.

A full board evaluation will encompass some of all of these methods. First, conduct a board survey to ascertain where issues may exist. Next, conduct one on one interviews with each individual director, then finally conduct a one on one interview with the CEO. In the meantime, assess the board’s annual agenda, review the committee structure, and issue a report.

Follow-up is critical! Develop a plan of action for addressing points that arise from the discussion, assign follow up responsibilities to an appropriate committee (executive or governance or board chair), and commit to an annual re-evaluation.

Remember that there is no “one size fits all” approach to evaluating the board. Each evaluation is different, and the key to success is for the board to be actively engaged in the process. If you do not undertake an evaluation based upon a legitimate purpose that is endorsed by the board, you will not see improvement.

A board that views evaluation as a valuable opportunity to focus on critical issues and improve performance will find itself way ahead of other bank boards.

Geri Forehand is director of strategic services for Brintech in Atlanta, Ga., and is a Certified Professional Consultant to Management. He can be reached at 800-929-2746 or GForehand@Brintech.com.

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