Board Performance Matters
Wed 09 September 2009
, Dr. Rodria LaLine and Dr. Donna Hamlin, INTRABOND CAPITAL Corporation
Want a better performing company? Develop a better performing board.
Smart public and private companies worldwide are monitoring board performance through regular evaluation and self-assessment. In the U.S. alone, almost 80% of all public companies regularly review their board performance by adopting ongoing annual board evaluation processes to improve both overall performance and board effectiveness.
Regular evaluation of a board correlates positively with improved board contributions in key areas, including clearer strategy, more competitive corporate performance, smoother CEO succession and improved risk oversight, according to the National Association of Corporate Directors.
For example, such factors as board diversity and composition of skills indicate differing results in board and corporate performance. Corporate results for return on equity, return on sales and return on invested capital in companies with more women board directors outperform results for companies (by 53, 42 and 66%, respectively) with boards having the least number of women directors, according to an evaluation by a Catalyst evaluation (2007).
In the United States, annual board reviews and self-assessments are mandatory in meeting the New York Stock Exchange (NYSE) listing requirements. In the Netherlands, best practice corporate governance in the Code Tabaksblad (III. 1.7.) advocates self-performance measures to be done; however, it does not outline how it should be done. In member states of the European Union, similar best practice codes exist.
Best-in-class boards demonstrate a rigorous commitment to defining ways to improve their contributions, competencies and value to the company and its shareholders. Most boards want to perform at that level, but they often need help to fashion effective evaluation procedures and processes that will help them define what they need to do to improve.
A routine, robust and accountable assessment of board performance is key to increasing board contributions and value to an organization. An annual assessment of board governance by a third party can provide a confidential, internal review of opportunities for improvement and a forum for candid reflection and discussion of how to consistently improve.
Specifically, a formal board evaluation process can help:
- Identify strengths and weaknesses and help make changes that can improve value to the company’s principal stakeholders and also extend stakeholder interaction in positioning the company’s role in society;
- Continuously improve board performance and effectiveness over time – developing both good leadership and strong relationships, management, and ethical values;
- Hold directors accountable and responsible for their performance and also ensure that performance in financial matters, as well as non-financial matters, can be made more rigorous, more quantitative and more clearly relevant;
- Tailor the board and committee composition to best meet corporate objectives;
- Better align the board with the company’s long-term sustainable growth, risk management and investment strategies; and
- Provide an objective method for board member communication about its impact, performance, expectations and responsibilities;
- Demystify the board process and improve board transparency with shareholders, stakeholders and with society; as well as with regard to capacities in the director’s advisory, networking and fiduciary role for decisions related to strategy, governance, outlook, brands, customers, markets, productivity, motivation, potential, sustainability and stakeholder dialogue;
- Add credibility in the eyes of shareholders and stakeholders, regarding the board’s functioning and reputation.
Current best practices in board evaluation include regular group discipline and self-evaluation of the whole board, plus specific evaluations of the audit, nominating, corporate governance and compensation committees.
Evaluation alone, however, won’t get you the most board performance improvement. Reviewing best practices, comparing board performance to industry norms and implementing agreed upon changes also help to heighten board performance gains.
INTRABOND CAPITAL Corporation is a board directorship and strategy execution firm specializing in two consulting lines: board effectiveness and corporate performance.
Dr. Rodria Laline, Chief Executive Officer of INTRABOND CAPITAL Corporation. Dr. Laline supervises a diverse network of professional associates in implementing strategies for industrial and consumer companies. She has been a CEO for industry collaborations of IBM, ING, HP, KPN, Bull, Elsevier and Philips and was a member of managing and supervisory boards in Asia Pacific, Europe and the USA. She is a former vice president of Oracle Corporation, and international executive of general management of Oracle. She also served as managing director of international operations of The Open Software Foundation. She is currently director of corporate governance programs for Nyenrode Business University in the Netherlands and helped create the university’s successful New Board Program.
Dr. Donna Hamlin, Managing Partner of INTRABOND CAPITAL Corporation. Dr. Hamlin is a corporate executive with twenty years of corporate and consulting experience. As founder of Hamlin Harkins, Ltd., she developed a successful track record in strategy, change management and human performance management, serving clients from Fortune 500 global enterprises to start-up companies in more than 30 countries. She served as global vice-president of human resources and administration for Trident Microsystems, Inc.; as senior vice president of strategic change, executive planning and leadership development for CitiGroup’s Associates First Capital Corporation; and as vice president for human and organizational performance for Texaco, Inc.
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