Amid increasing expectations for boards by investors, employees, regulators and other stakeholders, a rigorous process for board evaluation is more necessary than ever. A recent PwC survey found that only 29% of C-Suite executives rate their board’s performance as “excellent” or “good,” and 89% say at least one director needs to be replaced.
One way to reset expectations for board performance and reinforce governance generally is to strengthen the board’s annual performance evaluation. A recent EY survey found that while nearly all (94%) of the Fortune 100 continue to provide disclosure regarding the board evaluation process, the scope of that process has expanded considerably over the past few years. Key findings include:
- Individual Evaluations. Just over half (53%) of Fortune 100 companies now disclose that they conduct individual director evaluations, up from just 24% in 2018. These could include evaluations from peers as well as director self-assessments.
- Disclosing Topics. More than half (57%) of companies also disclose the general topics covered in board evaluations, up from 40% in 2018. For example, companies disclose that board assessment includes the quality and scope of materials, discussions, individual director understanding of the business, strategic foresight and contributions (see the report for a comprehensive list).
- Not Just Annual Anymore. About 23% of Fortune 100 companies seek feedback on an ongoing basis rather than just annually (up from only 9% in 2018). Board performance might be assessed as part of executive session or after a board meeting on an ongoing basis. In addition, more boards are using both interviews and questionnaires to solicit feedback.
- Third-Party Facilitators. About a third (32%) of companies surveyed use a third-party facilitator for board evaluation. This has been a developing trend and can increase candor and transparency in the process as well as ensuring rigor.
