By Debra CopeConducting well-designed self-assessments can lead to better performing boards. Usually the province of the nominations and governance committee, board assessments are a discipline for evaluating whether the board has the people, tools and focus needed to achieve corporate strategy.
“A board assessment is really about being effective,” said Tilcia Toledo, senior director with FTI Consulting in Washington, D.C. “It is how you make sure the board is functioning as smoothly as possible. It keeps board members accountable and highlights areas for improvement.” She added that for large entities, board self-assessments are expected as part of enhanced prudential standards. For everyone else, self-assessments are best practice and are at times mandated in the board’s charter.
On the front end, it is typical for the nominations and governance committee or a subcommittee of directors to meet, review best practices and identify the board’s goals for the assessment. Once decisions are pinned down, the design of the process, including any questionnaires and interviews, begins. The process is then implemented with the goal of 100 percent participation, Loflin said.
And toward the back end, the goals are to ensure a high-quality, accessible report with compelling graphics; develop a SWOT (strengths, weaknesses, opportunities, threats) analysis; highlight actions the board has committed to completing; and enhance board effectiveness, he added.
Toledo noted that there are different types and levels of assessments, and that most banks stagger them, doing a full board assessment, a committee assessment, and an individual assessment, or any combination.
The important thing is that “you have to be intentional about what you are asking and what information you want to receive.” Conducting the process anonymously—either through a digital questionnaire or by bringing in a consultant—can be helpful in encouraging directors to speak freely, Toledo said.
Indeed, digital questionnaires have become the norm, Loflin said. Often delivered online, they typically consist of 40 to 50 questions designed to stimulate discussion about the company’s direction, laying the groundwork for interviews. “The online questionnaire is where you till the soil and the interview is where you plant the seeds,” he said. The fruit, he added, is a “more nutrient-rich board.”
Banks can conduct their own self-assessments, often doing so internally because of budget considerations. However, working with a facilitator that has conducted multiple assessments can offer time savings and benefits, Loflin said.
One key step is to articulate the goal of the self-assessment, Toledo said. Is it targeted at the full board, the committees, the individual directors or a combination of them? Board composition is currently a hot button, so many boards are using self-assessments to determine whether they need people with specific skills, such as technology, risk management or audit.
Once the goal is in focus, the board can identify the topics it wants to cover. Directors can make the focus as narrow or as wide as they wish. In any given year, some boards choose to broadly gauge their strengths and weaknesses; others want to drill down into specifics, Toledo said. Often, the board is able to identify training needs through the self-assessment process, she added.
Some topics that are currently on the minds of directors include evaluating the quality of board meetings and materials and thinking about board replenishment. “For example, do you have plans in place if there is significant board turnover?” Toledo asked. “How diverse is your board?”
If a peer review is part of the process, anonymous questionnaires are usually necessary, Loflin said. “If you’re asking questions such as whether a board member arrives prepared and ready for discussions, you need to ensure some privacy,” he explained.
It is very important, Loflin added, to deliver an aggregated report that maintains an appropriate level of anonymity. The board should speak as one voice, even if there is a peer-review component, he said. Crisp, clear informational graphics can help tell the story. “Nobody wants a boring board assessment report,” he said. On the other hand, “an interesting and compelling assessment can lead to a deepened governance inquiry,” he added.
One of the biggest considerations is accountability, said Toledo. “You did the assessment and got the results. Now what? The committee that oversees the self-assessment process needs to keep track of what comes out of it and do the follow up. You are going through this exercise for reason and you want to make sure you get the most of it.”