Board Assessment
Definition
A systematic process that evaluates the capabilities, experience, and attitudes of potential board member candidates to determine their qualification for board membership.
Current Context
- Director assessment is no longer a discretionary activity
- NYSE requires annual assessments of boards, directors and mandated committees
(including Governance, Audit and Compensation)
- SEC requires mutual funds to assess their boards and committees
- D&O liability insurance companies are providing “preferred status” to boards conducting assessments
Morningstar now includes a Fiduciary Grade in its Mutual fund rating system. Criteria include:
- Board quality (i.e. has the board taken action in cases where the fund has not served investors well?)
- Corporate culture (i.e. how strong are the company’s communications? Has it done a good job of retaining key personnel?)
Recommendations
- Before proceeding with assessment design, determine how it will be used (e.g. for overall board or individual director development, as a performance measure to determine re-election, as a screen for candidates)
- Draw up a simple plan for communicating assessment results including timing, who will deliver the results and who will be privy to the results
- Develop a confidentiality code of conduct for assessment results
- Design/use an assessment tool for the full board that links to the organization’s strategic objectives, its code of conduct, shareholder relations and reputation risk.
- Design/use an assessment tool for individual directors that links to fiduciary responsibilities, governance processes, knowledge of the company’s strategy and reputation risk
- Develop a list of personal traits for all board members (e.g. common sense, good instincts, candor, backbone, stamina, leadership)
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