Governance, Risk Management, and Compliance: It Can't Happen to Us—Avoiding Corporate Disaster While Driving Success

Board Assessments

Important to ensuring that a board continues to be comprised of directors who individually and collectively have the skills and attributes to be effective, and operates as such, is a process for periodical assessment. Today 96 percent of S&P 500 boards conduct annual evaluations.³ Some do so as a result of New York Stock Exchange requirements. Others are driven by the guidance of shareholder advisory organizations, by perceptions of governance best practice, or simply by a desire to bring more value to the company and its shareowners. Whatever the reason, periodically evaluating the performance of the board and its committees is a good thing—if done well, the process can make the board stronger and more effective in carrying out its critical oversight responsibilities.

Note the caveat, if done well. When it comes to board assessment, a number of different approaches are being taken, with some significantly more effective than others. First and foremost, it's important that the assessment process be viewed as positive and constructive, in order to build a better board. If one director isn't doing the job as effectively as needed, the process should enable the person to become a better director. With that said, there are instances where a change in board composition is deemed desirable, either because of shortcomings in a director's performance or a need for different attributes and skills necessary for effective board performance.

Among the more common assessment ...