Governance Pro - Evaluating Board Member Performance February 2022

Evaluating Board Member Performance February 2022

In progressive organizations, upgrading board member selection criteria is a priority for the Corporate Governance/Nominating Committee. Identifying and selecting potential candidates who are interested, well intentioned, ethical, and generally aware of business trends and issues is a good start, but more is required. The inescapable fact is that many potential and veteran board members no longer meet many of the basic 2011 competency requirements.

Competency Prerequisites
To be considered as properly qualified or skilled, capable and acceptable, what kinds of criteria might be included in selecting a competent governing body? Every industry has its own unique purpose and function, a specialized variety of technological occupations and processes, an intricate industry vocabulary, risk management concerns, regulatory imperatives, and specific obligations to stakeholders, just to name a few of the basics of corporate governance. Certainly some individual candidate skill-sets, formal knowledge and expertise, practiced capability, and adeptness may be transferable between industries; but some are too dissimilar to facilitate a rapid learning curve, if at all.

Nevertheless, those organizations which have seriously considered what it takes to effectively perform the required duties, responsibilities and prudent conduct of directorship consider the following three items as major qualification imperatives:

1. Basic communication device literacy and usage: With the advent of smart phones, personal computers, e-mail, hand held PDAï¿½s, fax machines, and other devices, and considering that todayï¿½s active policymaker is very mobile which makes physical attendance at board meetings difficult at times, the contemporary board member is capable of using a significant number of such devices for corporate communications. Modern corporations operate their own secure director website, where board reports, minutes, board policies, rules and regulations and other important corporate information is regularly posted. Directors are expected to utilize a variety of technological communication devices to access board information, conduct interactive board communication, as well as participate in online CEO and board evaluations; the possibilities are endless. The candidate and/or incumbent, who is unable or unwilling to use modern communication technology is a questionable choice for directorship in a present-day organization.

2. Financial acuity: Every organization, regardless of its nature, purpose, products, services or corporate structure needs to be concerned with finance. Financial statements, budget comparisons and auditor reports ï¿½balance sheet, income statement, management reports, ratio analysis and other metrics ï¿½ are produced to measure the results of operations. It helps to have a formal background in finance, accounting and related industry experience to objectively analyse and understand how well the business is being operated. While it is best to have a variety of talents and disciplines on the board, a few accountants and financial experts can provide the impetus for meaningful discussions about important financial trends, issues and implications. Focusing on miscellaneous expenses as the directorï¿½s sole contribution is akin to not seeing the forest for the trees.

3. Investment in self-development: A popular axiom of the late 1900ï¿½s, titled ï¿½The half-life of an engineer,ï¿½ established a widely accepted principle that within a period of five years, the engineer who did not engage in advanced training and new skill development would reduce his or her competency level to 50%. What is the half-life of a corporate director in todayï¿½s rapidly changing economic, social and political environment? One three year term of office, perhaps even less!

Corporate governance policies in progressive organizations mandate continuous director development to advance competence. The list of development opportunities include basic industry educational courses, trade publications, periodic industry wide conferences and symposiums, required reading and a host of other development initiatives. Yet the obligation to self-develop and avoid the half-life syndrome remains with each individual director. Corporate Governance Committees should maintain a record of each directorï¿½s participation in such development opportunities and, if policy permits, may decline to provide re-election support (non-endorsed candidate) for those who have demonstrated diminished competency. Many organizations are already doing just that!

Without question, there are numerous additional director qualification requirements that an organization may elect to enshrine in corporate policy. It really depends on the industry, the election process, the laws and regulations respecting corporate governance, and the preferences of the shareholders.

At a recent industry meeting participants were asked how many were updating their corporate governance policies. Less than half indicated they were working on it and about a third admitted that they had not even thought about it; it was business as usual with the same retired veterans in the seats of power. Yet at the same time these organizations lamented the growing challenges and changes that were affecting their industry and their individual organizations. Unless they begin to seriously update, or perhaps qualify for some financial stimulus package ï¿½ todayï¿½s political heroin ï¿½ the alternative may be that they simply go out of business through merger or default.