Few governance issues are as difficult as measuring board performance. Evaluation of board performance is more of an art than science, as there is an interconnected link between management, firm and board performance. It’s also not always simple to define. For example it is possible that a board is in charge of the company effectively, however shareholders are unhappy about an unsatisfactory return on investment. The board could have inherited management and governance issues and is working hard to make the situation better. It could also have invested in new strategic initiatives and devised a turnaround strategy.
In other situations boards can become too involved in details of operations and make decisions that should be left to the management. These situations are made even more challenging when the board does not utilize a proper method of evaluating its members. It is very easy for minor issues to become major problems, which can affect the effectiveness of an organization’s board.
The board could have cultivated an informal culture that doesn’t take its responsibilities for performance assessment seriously. This could be due to the fact that it doesn’t have the proper systems in place to gather information on performance, or it’s unable find the necessary skills required for a boardroom to effectively perform its duties of evaluation.
Boards must not just have the required skills, but also be open to the findings of the assessment. The board should be able to identify areas of improvement and work with management on plans for action. This could board of directors conflict of interest include regular training sessions for the board to improve knowledge across the board.