Great Article: What Does It Take to Build a Better Board? -- Effectively Dealing With Underperforming Directors

Posted by Bill Bockwoldt on November 8, 2010

Here is a snippet of a great article we found very interesting and thought our readers would enjoy:

"Boards are beginning to apply the same tough performance standards to themselves that they now use with their CEOs and executive leadership teams," says Stephen A. Miles, Vice Chairman at Heidrick & Struggles.  

"Best-practice boards are opening themselves up to more rigorous performance evaluations, often by external advisors – a trend we expect to see a lot more of in the coming months and years as other companies follow their lead," says Bonnie Gwin, Managing Partner of Heidrick & Struggles' North American Board of Directors Practice. "We are seeing boards move from a compliance-based review to an actual performance review: how is the board – as well as its various committees and individual directors – really doing?

"Being a director isn't a lifetime appointment anymore," says Ms. Gwin. "There is now increasing pressure to evaluate actual director effectiveness, contribution, and performance."

The weakest links

"Very few boards today are able to say truthfully that each and every director is adding real value to the company and CEO," says Mr. Miles. "In fact, boards struggle with board succession, effectiveness, and renewal. It is fairly typical to have one or two directors who are viewed as not adding value over time, yet, in many cases, nothing is done.

"Unfortunately, it is often the practice that boards avoid dealing with their weakest directors, while at the same time they have become a lot more aggressive in pushing their CEOs to hire and keep only the best people around them. Addressing director performance requires the same focus and good process."

Moving from a compliance to a performance focus

"In the post Sarbanes-Oxley era, almost all boards engage in some form of compliance-based board review. These reviews are often led by a law firm and are in place to ensure that the board is following its mandated bylaws and procedures," says Mr. Miles.

"The problem is that the standard process misses a fundamental point: is the board just checking boxes or are they truly 'high performing'? Do the board members add value for shareholders and their Chief Executive Officers?

"The best boards today are tackling this by adopting measures that are very similar in approach and methodology to the assessments being done at the CEO and upper management level. These include everything from 360-degree feedback from their boardroom peers and upper management to an examination of how each director is performing as a chair, lead director, or chair of a committee. Typically conducted annually with check-ins throughout the year, these evaluations are used to form a set of recommendations to the overall board as well as personalized development plans for each individual board member.

"While this rigorous process might seem daunting at first, experience has shown that this approach has real and lasting impact at both the overall board and individual director level," says Mr. Miles.  

Here is a link to the full article:

Tags: Sarbanes-Oxley Articles & Information, compliance, Sarbanes-Oxley