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Why boards should evaluate individual director performance
Assessing individual director performance is critical for today’s boards. While performance assessments may be standard for executives and the board as a whole, less than half of S&P 500 boards disclose that they perform individual director assessments.1 Such assessments promote continuous improvement and can drive necessary changes in board composition and ensure alignment with the company’s strategy. Individual director assessments also demonstrate to investors the board’s commitment to holding directors accountable for their performance.
For boards without individual director assessments, start with self-assessments, and then consider peer assessments. Properly conducted director assessments can enhance overall board performance, making the effort worthwhile.
1Spencer Stuart, 2022 U.S. Spencer Stuart Board Index, November 2022.
Individual director assessments: key questions answered
The hierarchical nature of most organizations means that the CEO on down has a supervisor or governing body to appraise their performance. Boards are different. While there’s a chair and/or a lead independent director as well as committee chairs, board members are peers.
Increasingly then, boards that evaluate individual performance are leveraging peer assessments, with directors anonymously assessing their fellow board members. As part of this process, the CEO and other senior leaders may also provide individual director feedback. Individual director assessments can provide insights into not only the value of individual contributions, but also how an individual’s presence affects the board’s overall culture and performance.
...read more in the report.
Confidentiality, objectivity and candor are key to generating useful results.
- Consider having an independent third party help facilitate the process.
- Consider how the assessment is designed.
…read more in the report.
Our research shows that C-suite executives are concerned with board performance and would like to see more turnover, with an appetite for refreshment that far exceeds that of directors.
…read more in the report.
Boards may be reluctant to undergo peer assessments. Few people enjoy receiving feedback if it’s not positive — particularly when the feedback is anonymous. Some directors see peer assessments as damaging the board’s carefully-calibrated dynamics and culture, potentially eroding trust and inhibiting discussion.
…read more in the report.
The most effective boards set up assessment processes that include follow-through.
- The process should support the chair/lead director to candidly deliver assessment results.
- The results should then be translated into outcomes to promote continuous improvement.
…read more in the report.
Boards should consider taking broad steps to lay the groundwork for individual assessments to make the process more productive for directors.
- Hold candid conversations about board tenure, refreshment and succession to help eliminate the stigma of stepping down from a board.
- Re-frame the purpose for conducting individual director assessments.
- Set clear expectations upfront on the process and performance criteria.
- Make sure board leadership is strong.
…read more in the report.
Further steps that boards should consider taking include:
- Recognize the need for different criteria for individual board members.
- Start with director self-assessments.
- Formalize the process for conducting individual director assessments.
- Establish goals.
- Put the onus on individual directors.
…read more in the report.
Example individual director assessment survey
In the appendix of our guide, we've included an example individual director assessment survey. This example questionnaire indicates the principal areas that a director’s effectiveness review should cover. While use of this tool will provide helpful information, additional value may be gained by distributing the tool more widely to obtain the views of others (e.g., fellow directors, management and others with whom the director interacts).
…read more in the report.
Conclusion: it’s time for boards to do the hard work
Directors, individually and collectively, should view individual assessments as an opportunity to evaluate board culture and dynamics and gauge whether the structure encourages open discussion. These assessments get directors thinking about their performance where they can add value, how they can leverage their unique experiences and when it may be time to step away from the role. Assessments are important feedback mechanisms to aid directors’ growth and maximize their contributions to the board and the company.
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