Board evaluations - why are they necessary?
The UK Financial Conduct Authority recommends that FTSE 350 companies have externally facilitated board evaluations at least every three years.
Furthermore, the Guide states that chairs of small and medium enterprises are encouraged to consider undertaking externally facilitated board evaluation or effectiveness reviews periodically. (FCA Guide to Board Effectiveness: 2018)
Triennial external evaluation of boards is also the expectation for regulated bodies in sectors such as financial services, utilities, universities, FE Colleges, schools academy trusts, housing associations, NHS foundation trusts, member associations, representative bodies and many others. The Charity Governance Code includes this requirement for trustees of "large charities" (Turnover > £1m, with audited accounts).
Board evaluations - the recommended approach
It is good practice for boards to self-evaluate their effectiveness every year and report the key outcomes in their organisation's annual report.
Many organisations use the triennial evaluation as a guide or benchmark for the following two annual reviews. Board evaluation processes are routinely practiced in most geographic regions where a code of corporate governance is adopted and where enterprises, whether privately owned or for public benefit, are subject to external regulation.
Board Measures - an alternative method for measuring board effectiveness
The Board Measures systemic approach compiles data on the underlying skills, knowledge and experience (competences) that are available to a board.
Board members can apply the same level of judgement to the board's collective effectiveness. Factors that can be applied to their judgement of the board’s collective effectiveness include:
- Observations over the review period of what happens in the boardroom;
- How decisions are made, and the quality of debate when making them;
- The appointments process for new board members;
- The quality of reports by executives and staff to the board;
- Behaviours of board colleagues towards each other and the reporting staff; and
- The role played by the Chair in ensuring the board is working effectively.
How is a board's collective effectiveness measured?
It isn't a simple aggregation of the expertise of individual board members' expertise.
For example, having one or two CFOs as non-executive directors on a board, by itself doesn't provide evidence that the board collectively is competent or effective on financial criteria. Being effective depends upon the board members' judgements on the factors referred to above.
The role of the external facilitator
The value of the facilitator is in helping the board to analyse and interpret the outcomes.
Board Measures’ methodological approach to evaluating the board's collective effectiveness minimises the amount of our facilitator's time involved with compiling and sifting data, which reduces costs. The facilitator helps the Chair and board to analyse and interpret their outcomes, highlighting blind spots in the board's collective effectiveness that they may not have realised themselves and recommending options for improving the board’s effectiveness.
Board Measures - its value to Chairs and boards
Board Measures is highly adaptable and represents real value for money.
Board Measures is an ideal board evaluation system for enterprises of all sizes, and in particular for small and medium businesses (SMEs) and publicly accountable organisations.
Board Measures is cost and time efficient for boards and the outputs can be utilised to support the directors’ annual appraisal cycle, onboarding and training programmes and succession planning for boards.
For further information about Board Measures, please contact us or by email to: david@coachingfutures.com
