Considerations for Enhancing the Board Evaluation Process

Thorough, rigorous, and recurring evaluations are an important mechanism for boards looking to reliably assess performance and effectiveness. For over a decade, companies listed on the New York Stock Exchange (NYSE) have been required to disclose how their boards evaluate key committees. In addition to committee evaluations, the NYSE also recommends that companies conduct full-board assessments annually.

NACD has long called on companies of all sizes and ownership structures to carry out individual director, committee, and full-board evaluations as part of a broader strategy for continuous improvement. This brief offers guidance on how boards can transform evaluations from a check-the-box exercise to a dynamic process that enhances board performance.

Boards are facing an increasingly uncertain and unpredictable business environment— in addition to growing demands and expectations from investors, regulators, employees, and customers. In response to this shifting landscape, the Report of the NACD Blue Ribbon Commission on Building the Strategic-Asset Board encourages directors to make themselves strategic assets to their companies by focusing on continuous improvement in the boardroom. The report instructs boards that are looking to enhance their strategic values to align skills with their company’s broader strategy, maintain effective board succession plans, and effectively communicate long-term goals with the company’s most important shareholders. Meaningful board evaluations are an integral part of strategic-asset boards. In fact, NACD’s report on building the strategic-asset board recommends conducting full-board and committee evaluations annually, in addition to individual director evaluations at least once every other year.2 However, to incorporate a continuous improvement mindset, boards should seek additional opportunities to assess their performance throughout A: Q: Director FAQ | Considerations for Enhancing the Board Evaluation Process 2 the year, such as evaluations coinciding with critical inflection points for the organization and/or the board, or periodic informal evaluations at the end of board meetings.