What is a Board Review?
Simply stated, an effective Board review is about taking stock of the Board’s current performance, relationships and strategy to identify where the Board can add even more value to the organisation.
Reviews will generally have two main goals:
- Identify opportunities to improve and make the most of the Board’s potential.
- Catch nascent issues before they develop into problems.
In this way, Boards can adjust to address past issues and target improved performance.
Why should we do a Board review?
Actions leading from Board review recommendations could improve Board culture, Board composition, Board characteristics or Board processes.
Apart from wanting to become the best Board it can be, a Board might conduct a review to:
- Increase Director and Chair Productivity/Performance;
- Solve succession issues;
- Predict and meet future skills requirements;
- Improve Chair-CEO relationships;
- Steer strategy sessions;
- Address Board conflicts;
- Motivate and re-energise the Board;
- Clarify Board/management accountabilities.
- Optimise information flow and meeting time;
- Avoid entrenched Board behaviour; and
- Develop goals and structure for new committees.
Are there any prerequisites for doing a Board Review?
The only prerequisite is clarity about what the Board hopes to achieve from a review. For Board reviews to work best they need to be tailored to fit the Board’s purpose.
What happens during a Board review?
Each Board will have different expectations and levels of expertise, so even Boards with the same purpose will likely need a slightly different review process, depending on whether they are new to reviews or have previously participated in a full formal review process.
A full review with an external facilitator generally proceeds with some or all of the steps in the diagram below. Steps with dotted lines can be omitted, replaced with other steps or simplified depending on the depth of the review required.
Is it compulsory for Boards to conduct a Board Review?
APRA-regulated entities must have procedures for the annual assessment of individual Director performance and the Board’s performance relative to objectives.
Although it is not otherwise mandatory to conduct a Board review, to meet the ASX Corporate Governance Council guidelines, organisations must have and disclose a process for the performance evaluation for the Board, its committees and Directors and disclose whether the evaluation has taken place in accordance with that process.
Many proxy advisors also expect Board reviews to occur annually and expect communication on the process and outcomes. Finally, many state and federal government organisations are also expected to conduct regular performance evaluations.
Yet if Boards conduct a review for the sake of ticking a box, the exercise has already failed. Only those who conduct their review with real aims will AVOID DOWNSIDE, and PERFORM BETTER.
Who initiates a Board review?
Normally the Chairman will be the initiator; however, it could also be the lead independent Director, or the Chair of the Nomination Committee. The review process might either be facilitated by these Directors or the CEO, the Company Secretary, the General Counsel or the General Manager Human Resources.
How often should a Board conduct a Review?
Although Boards should constantly be monitoring their performance, formal Board Reviews are normally held annually.
While it’s advisable for those new to the process to start with a full formal review, those who have already done a full check-up might decide to do a pared back version in some years, or to drill into specific areas highlighted in their prior formal review, for example strategy, renewal, the meeting process, the quality of documentation or personal development for individual Directors and Chair. This will provide more detail on how to best tackle problem areas or better seize opportunities.
How long will a Board review generally take?
A comprehensive review with all the steps in the diagram above would normally take two to three months. However, if the Board decides to leave out some of the steps or modifies the scope and the audience, the review can be conducted in a shorter time frame. If only an online survey is required, for example in the case of a follow-up review, the review can be completed in a matter of weeks.
Why would a Board engage an external consultant to conduct a Review?
Boards who have never conducted a review before benefit from the framework an external facilitator provides. Other Boards also benefit from external consultants as they see issues in a fresh light, are objective, and will not be personally involved in any of the conflicts, relationships or history existing within the Board. This eases the flow of feedback and enables recommendations to be made at arm’s length.
Some proxy advisors, such as the Australian Council of Superannuation Investors, recommend that externally-led Board evaluations occur periodically. As a rule of thumb, we suggest that an external review be held at least every two to three years to avoid complacency and group think and to optimise opportunities for the Board to add value to the organisation.
In some years, a cost-effective option is to engage a consultant for part of the process but not to conduct the entire review. For example, an external provider might assist with the formulation of questionnaires. This will help keep the review aligned with the Board purpose and provide direction if the Board decides to explore different areas or address the process from a new direction.
Is the aim of Board Reviews to oust underperforming Directors?
Although a Board review does provide a platform to air feedback on individual Directors and the Board’s performance as a whole, a Board review is not intended to put individual Directors on trial. It is simply an assessment of how each Director can best contribute to the Board in its current context.
What happens if the Board Review identifies serious issues?
This is where having an external facilitator can ease the way. As an objective observer, they can recommend various options to address issues and initiate a consultation process to come up with the best solution for the Board. They can also aid in follow-up to ensure the implementation of any solutions is carried out as swiftly and as free of conflict as possible.