It’s like having children mark their own homework, quip governance experts at ICSA International, a professional body for company secretaries, after recently studying a number of corporate board self-assessment programmes in the UK. They say many “in-house” programmes being run by companies are not “sufficiently rigorous” — not only do they suffer from subjectivity and the cynical support of chairmen, but they also tiptoe around serious problems and shy away from being too critical of individual board members whose work is not up to snuff.
So much for the good intentions of this post-Enron governance reform. Starting in the US and picked up across the Atlantic, the idea of having boards undergo annual performance reviews to help them do their jobs better is certainly worthy. Today, according to a 2007 corporate governance report from headhunter Heidrick & Struggles, the use of board evaluations varies greatly across Europe. Most countries fall somewhere in between Italy, where reviews are nonexistent, to Sweden, where they’re standard practice at all but a few companies. (See “Open Up” at the end of this article.) Yet a spying case at Hewlett-Packard and corruption charges at Siemens are just a few reminders why a growing number of stakeholders will be crying out for more board performance reviews.
For the most part, boards — more accustomed to giving than receiving feedback — have yet to either shed their reluctance about putting their work in the spotlight or get to grips with how best to run their performance reviews, as CFOs who work with their group board or sit on boards of companies as non-executive directors know. More often than not, reviews keep the bar low, requiring directors to fill out general questionnaires on a range of broad issues, from whether the board spends enough time discussing business strategy to whether it is receiving enough information about the company. Beyond that, board members might be required to undertake peer reviews and anonymously assess each other’s work. The big problem is that many evaluations are so generic that they “don’t get under the skin of a lot of issues,” says Richard Sheath, a director at corporate governance consultancy Independent Audit.
Outside Looking In
One solution is to supplement self-assessments with reviews led by external help from headhunters, academics, consultants and other performance experts. With third-party reviews — which cost between €60,000 and €90,000 and can take up to six weeks to complete — individual directors should expect to spend around three hours each, for a one-to-one interview and a few feedback sessions.
Although not used as frequently as self-assessments (see “Do It Yourself” at the end of this article), such reviews have several advantages over self-assessments, says Sheath, whose firm is among the boutique consultants offering boardroom evaluations. For one thing, they go a step further than questionnaires, using interviews to a third party lets members “actually express a view” and critique the work of other members anonymously. For another, external consultants aren’t entrenched in boardroom politics, allowing them to be more objective.