Few governance issues are as difficult as assessing the performance of boards. Evaluation of board performance is more an art than science because there is an interconnected link between management, company, and board outcomes. It’s also not always clear cut. A board may be doing a great job of managing a business but shareholders are not happy over the poor return on their investment. The board could have inherited the company’s management, governance and firm issues and are working to make things better. It may also have invested in new strategic projects and created a turnaround plan.
In other instances the board could be getting too involved in operational details and making decisions that should be left to the management team. These situations can be exacerbated if the board is not employing a proper method to evaluate its members. It is easy for minor issues to escalate into serious issues, which could compromise the effectiveness of a board.
The board could have developed an informal culture, which doesn’t take its performance assessment responsibilities seriously. This could be due to the fact that it doesn’t have the right systems in place to collect performance data, or it’s unable find the necessary boardroom expertise to effectively carry out its evaluation responsibilities.
Boards shouldn’t just have the required capabilities, but should also be open to the findings of the assessment. The board great post to read about modern environment with Ideals data room should determine areas that need improvement, and work with the management team to create an action plan. This could include arranging regular board meetings on relevant subjects to increase knowledge levels across the board. It could also be a way to address information asymmetries.