How often a board should review its performance depends on a range of factors. Whilst the starting point is generally any regulatory requirement, there are also a range of other factors to consider when thinking about the right review and performance improvement cycle.
The regulatory requirements
Many organisations have a regulatory obligation to perform periodic board reviews. A brief overview of the regulatory environment for a number of key jurisdictions is outlined in the table below:
ASX Corporate Governance Principles and Recommendations
“A listed entity should:
(a) have and disclose a process for periodically evaluating the performance of the board, its committees and individual directors; and
(b) disclose for each reporting period whether a performance evaluation has been undertaken in accordance with that process during or in respect of that period.”
APRA Prudential Standard CPS 510 Governance
“The Board of a locally incorporated APRA-regulated institution must have procedures for assessing, at least annually, the Board’s performance relative to its objectives. It must also have in place a procedure for assessing, at least annually, the performance of individual directors.”
New Zealand Corporate Governance Forum Guidelines
“The board should have rigorous, formal processes for evaluating its performance, along with that of board committees and individual directors, including the chairperson. This could extend to formally reviewing the position of chairperson on a regular basis.”
NYSE Listed Company Manual
“The board should conduct a self-evaluation at least annually to determine whether it and its committees are functioning effectively.”
Singapore Code of Corporate Governance
“There should be a formal annual assessment of the effectiveness of the Board as a whole and its board committees and the contribution by each director to the effectiveness of the Board.”
UK Corporate Governance Code
“The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.”
Best practices beyond regulatory requirements
For companies who do not have a regulatory requirement, the right answer depends on what is happening within the board and broader organisation.
At a minimum, best practice is generally to conduct a robust review every three years and have a less formal process in place to check in annually on issues and actions. Within this framework it may sometimes make sense to conduct a robust review more frequently. For example, if there have been major changes to the composition of the board or management team, or there is a change of CEO or Chair.
The right frequency for your board review also depends on how willing individual directors and management are to take action. Any review is only as good as the actions that result from it, so there’s no point conducting a review each year if it is merely a tick box exercise. This can be avoided by designing the process to ensure each review is valuable and focused on different aspects. To do this, the best performing boards think about a multi-year program of work that covers different areas in each year.
Building a multi-year program of board performance work
Boards who achieve the best results from board performance work are those that build a cadence of performance activities with less work done more frequently. As an example of what this program of board performance work might look like, a board may set the following multi-year program:
Initial board evaluation – focusing on collective performance of the board, Using a full diagnostic to build a baseline for performance and areas for improvement
Skills matrix – benchmark and track the overall skill base of the board
Light touch board evaluation – focused on identified areas for improvement
Committee evaluations – focused on delivering a detailed review of individual committee performance
Director 360s – focused on individual performance and development areas
Board evaluation – revisiting the collective performance of the board in detail
Whilst setting this overall program, the board also retains some flexibility to change the structure of year two and three based on the priorities and focus areas that emerge in year one. For example, it may make sense to prioritise Director 360s at an earlier stage if there is substantial feedback suggesting issues or benefits in this area.
Ensuring your board performance process is fit for purpose
To debrief and implement actions effectively from a high quality board performance program takes between 5- 10x the upfront commitment in terms of board hours. It’s an equally bad outcome not to deal with identified board performance issues, as it is for the board to only deal with board performance at the expense of critical business issues.
Regardless of how often you conduct a board review, the review needs to be fit for purpose. All boards have a limited amount of time to govern the organisation, so it’s important to ensure that time spent introspectively is used efficiently. As a rule of thumb, if you find your board is spending more than 10% of its time reviewing itself then it’s time to rethink the process.
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Allie Gertz / About Author
Allie Gertz is a senior writer at BoardOutlook, a software platform that delivers a standardised and rigorous platform for board evaluations and professional development.