Board composition and performance continue
to be under scrutiny by various stakeholders.
Institutional investors are paying close attention
to the individuals representing their interests in
the boardroom, and how the board addresses
its own succession. Hedge fund activists are
also watching and certainly have not been shy
about seeking change. And directors themselves
are increasingly vocal about the performance
of their peers. In fact, 46% of directors believe
someone on their board should be replaced;
20% believe two or more directors should.1
They say their top reasons are because directors
overstep the boundaries of their oversight role,
are reluctant to challenge management, have a
style of interacting that negatively affects board
dynamics and advanced age has led to diminished
performance. So, how do boards use their annual
assessment process to measure effectiveness,
drive refreshment and raise performance? They
shift to a continuous improvement mindset.
Most directors have completed board and committee assessments for
years as required by stock exchange listing standards. Fewer boards
conduct individual self-assessments; only about a third of S&P 500 boards
evaluate the full board, committees, and individual directors as part of
their annual assessment process.2
While some boards are quite good at
conducting these assessments, others could stand to get more out of the
exercise. The biggest roadblocks? Viewing it as a compliance exercise,
using an approach that doesn’t really allow for honest feedback and failing
to follow-up on the results.
It takes a strong chair or lead director to change the board's culture and make it one that accepts and encourages
Paula Loop, Leader
Boards and individual directors would benefit from re-envisioning their
assessment approach. This involves re-defining the process as one that is
ongoing and provides real value and continuous improvement. Here are five
key actions to ramp up the board’s next annual assessment:
Lead like a lion. Board leadership is critical to making changes
happen. Without a strong leader, it doesn’t matter how meaningful
your assessment process is.
Change the endgame. Making the assessment process an
ongoing exercise with the goal of continuous improvement
can deliver better results. But early buy-in from all directors on
the process is critical.
Address the elephant in the room. Boards that have frank
discussions about what is holding their performance back
can excel. This involves having a way to provide honest
individual director feedback, which can be done in different
formats. A periodic independent perspective can help.
Take action to get real results. Effective boards are disciplined
about identifying and holding themselves accountable for
action items coming out of the assessment. They also integrate
assessment results into their director succession plan.
Give investors greater insights. Many boards are taking a closer
look at their disclosures around board assessments — seeking
to provide stakeholders with a greater understanding of the
process. Shareholder engagement in this area has risen, and
boards are taking steps to be more transparent.
Lead like a lion
Board leadership is critical to making any
changes happen. The board leader sets the
tone for the culture of the board, and in
many cases leads and drives the assessment
process. In fact, 87% of directors indicate that a
strong focus from the board chair or lead director is an
effective method to drive board refreshment.3
Without a strong leader, it doesn’t matter how meaningful your
assessment process is.
A close look at board culture and whether directors
really can be candid when providing feedback is also
needed. This involves understanding the way that directors
make decisions, handle disagreements and share
information. If the board is to continue to grow and
improve, the culture has to be open to the idea of giving
— and receiving — regular feedback. And, board leadership
is key to ensuring this environment exists.
Change the endgame
Let’s face it, the word “assessment” can
have a negative connotation. It can put
people on edge, even in a boardroom of
high-performers. Because of the collegial nature of many
boards, it can sometimes be hard to deliver less than glowing
feedback about a fellow director — which can turn the
process into “something to get finished” rather than a way
to enhance board performance. According to PwC’s Annual
Corporate Director Survey, only 43% of directors say their
self-assessment process is very effective.4
They also view
assessments as a compliance requirement: 63% of directors
say they find the assessment a “check the box”
exercise.5 So what can boards do?
Take a fresh look at the approach: Boards can improve
the value of their assessment process by focusing on
continuous improvement and board excellence. Effective
assessments should look at ways to enhance board
dynamics, composition, oversight and practices. They
should reinforce what is working well and highlight those
obstacles that are limiting strong performance. And, the
assessment is best viewed as an ongoing process rather
than just a once a year event.
Some boards have embraced a continuous improvement
mindset by adding more frequent opportunities to
discuss effectiveness as part of their agendas. Others
have instituted a formal process for providing director
feedback or coaching throughout the year. Boards can
also take a fresh look at their assessment approach and
evolve the format or ask different questions to drive a
better outcome. They may even find it valuable to dive
deeper on a few particular areas where they believe there
is potential improvement.
Get early buy-in: Before the assessment process
begins, directors should discuss the approach and
decide on any changes they wish to make. This
involves engaging directors early and giving them a
chance to provide input and voice their concerns so
these items can be addressed appropriately. The
discussion should cover the assessment’s scope and
objectives, how it will be conducted and reported back,
and the need to openly share and receive feedback. The
goal is to get agreement on what the assessment
process should accomplish and obtain commitment
and support for it.
Address the elephant in the room
What holds boards back from top performance?
Board culture and interpersonal
dynamics tend to be the most common
sources of dysfunction in the boardroom.
Dysfunction can take various forms, whether it is a lack
of trust between the board and CEO, disruptive or disengaged
directors, factions in the boardroom or poor
decision-making processes. These issues, though sometimes
apparent to those in the boardroom, can be the
most difficult to address.
Directors’ views of self-assessments
Sources: PwC, 2017 Annual Corporate Director Survey, October 2017;
PwC, 2014 Annual Corporate Director Survey, October 2014.
Six key questions to consider
asking in self-assessments
Boards that are committed to selfimprovement
use assessments to ask:
How effectively do we engage
with management on the
How healthy is the relationship between
our CEO and board?
What is our board succession plan?
What is our mechanism for providing
individual director feedback?
What is our board culture and how well
does it align with our strategy?
What processes are in place for
engaging with shareholders?
Source: Spencer Stuart “Performance in the Spotlight: Assessment and
Board Effectiveness,” March 2016, https://www.spencerstuart.com/
To improve board performance, directors need to identify
and address what isn’t working, and the assessment
process can be a key way to do so. But directors need to
be frank in these discussions. This isn’t always easy: 70%
of directors say they find it at least somewhat difficult to
be frank during the assessment process.6
Add to this the
fact that many boards do not have a way for directors to
share feedback with their fellow directors. So what can
boards do to address the elephant in the room?
Institute mechanisms for honest director feedback:
Boards can address whether the assessment process
really allows for issues and concerns to surface and be
dealt with, particularly the ones related to individual director
performance. The process should permit the board, its
committees, and individual directors to think critically,
have meaningful discussions and identify potential areas
for improvement, as well as demonstrate a willingness to
address any weaknesses. A high-performing board culture
allows directors to feel comfortable being open and
candid with their concerns.
Feedback on individual directors is increasingly viewed
as a critical component of the assessment process.
Directors can use the output to improve their performance.
The format of individual director feedback can
vary. The goal shouldn’t be to grade directors, but to
provide constructive input that can improve performance.
Approached in this way, directors often welcome
the opportunity to receive feedback.
Boards should be open to the results of the assessment and be prepared to deal
with the findings. This involves having candid discussions about performance
issues that are raised and prioritizing what should be addressed.
Leader of North American Board
Effectiveness Services, Spencer Stuart
Some boards use a formal individual director assessment
or a peer assessment process. Others may implement a
mentoring program for directors. Another way to provide
individual director feedback can be to have each director
meet periodically with the chairman/lead director or
nominating/governance committee chair.
Board leadership plays a critical role in ensuring directors
receive important feedback. Board leaders frequently get
feedback on individual directors or observe behavior in
meetings that can be improved. However, awareness of
these behaviors does not always translate into action. For
example, only 15% of directors say their board provided
counsel to one or more board members as a result of
High-performing board chairs
and lead directors will embrace this role.
Consider periodically getting an independent perspective:
Companies may choose to periodically engage an
independent facilitator to assess board performance.
Twenty-one percent of boards engaged a third party in
And, this number is likely to increase because of
growing stakeholder pressure on board performance.
An independent view can be very helpful in providing the
board with perspectives on how it compares to its peers
or “measures up” to the evolving standards of corporate
governance. The third party can also conduct interviews
individually and share the collective feedback with the
director without providing attribution to help them understand
what is working well and where there are concerns
or areas for improvement. Ultimately, the independent
facilitator has the advantage of being able to more readily
identify and air difficult issues, and can help the board
reach a consensus on how to respond effectively. Because
of the financial cost, some boards hire third-party facilitators
every third year or as needed in response to changing
board dynamics or emerging challenges.
Take action to get real results
Committing the time to review the results
of the assessment process and having an
open discussion about the findings are
critical. But boards often fall short as they
spend too little time — or even no time — discussing
and acting upon assessment findings. This is a missed
Agree on action items and develop a plan for change:
Directors should work together during the assessment
process to identify and agree on areas in which the
board would like to improve. Areas for improvement
might be to add a director with particular experience,
increase the board’s diversity, schedule a board retreat
that focuses on strategy, create more opportunities to
communicate with the CEO or hold more frequent executive
sessions. At the individual level, a director may be
advised to attend an educational program to enhance
knowledge in a particular area, engage more often in
discussions or change behavior in the boardroom.
Only 15% of directors say their
board provided counsel to one or
more board members as a result
of their self-assessment.
Source: PwC, 2017 Annual Corporate Director Survey, October 2017.
Board action on assessments
Source: PwC, 2017 Annual Corporate Directors Survey, October 2017, In response to the results of your last board/committee assessment process, did your board/committee decide to do any of the following?
Effecting real change requires a plan for addressing
issues raised in the assessment. Such a plan starts
with identifying a leader — often the chairman, lead
director or nominating/governance committee chair
— to drive the changes. The leader should develop an
action plan to discuss needed changes with the appropriate
parties, as well as identify potential strategies,
options, and key milestone dates. It is then important
for the leader to monitor implementation of the action
plan for additional follow-up and results, keeping the
full board updated on progress.
Integrate assessment results into board succession
planning: As part of the action plan coming out of the
assessment process, the board should discuss whether
changes are needed to the board succession plan. The
assessment process is a natural platform for reviewing
the skills and expertise needed on the board in the
context of the company’s long-term strategy. Does the
board need access to deeper technological skills? Does
it need more diversity of perspective? These discussions
should filter into director succession planning, which is
often led by the nominating/governance committee.
Today, director succession planning is often performed
as a separate, distinct exercise, done on an as-needed
basis when facing an impending vacancy on the board.
In fact, typical drivers of renewal cited by directors are
director retirements (91%), the desire to add new skills
(79%) and the goal to increase diversity on the board
But when findings from the assessment process
are integrated into succession planning, the board is
more likely to address issues in its composition and
make the changes needed to get the right people in the
boardroom. If new or different skills and expertise are
needed, boards can consider them when seeking new
directors. High-performing boards evaluate composition
holistically and address it over a longer period of time,
perhaps even with a five-year succession plan. Some
boards act sooner by expanding their size to accommodate
a new director with the needed skills and expertise.
Give investors greater insights
Shareholders are seeking more information
about how boards address their own
performance, including whether they are
using assessments as a catalyst for
refreshing the board. Today, disclosures are fairly
limited in this area. Beyond reporting that boards
conduct an annual assessment, most S&P 500 boards
disclose few details about their assessment process.
A handful offer more detailed disclosures, including
descriptions of the areas that the board assessment
cover, the process and the actions the board has
agreed to take following the assessment.
Benchmark disclosure on assessments and consider
voluntarily expanding it: Boards are generally doing
more than they disclose. And, with the increasing spotlight
on board performance, the time may be right to
reassess these voluntary disclosures and provide more
insight. The Council of Institutional Investors (CII)
suggests that “[s]uch disclosure is an indication that a
board is willing to think critically about its own performance
on a regular basis and tackle any weaknesses.”10
CII highlights two best practice models for disclosure.
One focuses on the mechanics of the assessment
process, illustrating the process the board uses to identify
and address gaps in its skills and performance. The
other focuses on the most recent assessment, recapping
the key takeaways and plans for improvement.
CII notes that depending on the board’s process,
disclosure may include:
A description of the steps in the board evaluation, including
who is reviewed and how reviews are conducted
A discussion of continuous improvement initiatives
and the activities that directors participated in during
the past year
Whether the board engaged an external adviser
to conduct the board evaluation and the role
that the adviser played (for example, interviewing
The objectives for the evaluation and how the board
will use the findings
Follow-up discussions that occurred. For example,
some boards report having a mid-year check-in to
evaluate the progress made in addressing areas of
focus identified in the annual evaluation
Boards can ask management to benchmark the
company’s disclosure about the board assessment
process with that of peer companies. They can also
11 PwC, 2016 Annual Corporate Director Survey, October 2016.
ask them to draft a sample enhanced disclosure that
includes additional information on the board’s assessment
practices and considers insights drawn from
management’s review of other companies’ disclosures
and shareholders’ perspectives. This information can
help the board to critically evaluate whether it should
voluntarily enhance its proxy disclosures.
Be prepared for potential engagement with shareholders
on self-assessments: Direct communications between
board members and investors has grown considerably
over the last several years. Just under half of directors
now say their board has such engagement.11
Shareholders are more often meeting with nominating/
governance chairs and asking about board assessments
as part of their engagement program. They want to
understand how boards are assessing their own performance
and the skills and expertise needed to oversee
the company’s long-term strategy. They also want to
understand the board’s position on director turnover,
succession planning and diversity. Some high-performing
boards even conduct “opposition research” to
understand and identify what a tough critic would say
about their board’s composition to be prepared for any
Board performance is being scrutinized by shareholders, the media,
the public and others. In today’s environment, boards will want to
refresh their assessment process to ensure it encourages a continuous
improvement mindset and allows for candid and honest feedback.
When done well, the assessment often results in changes that allow the
board to deliver greater value to the company and its shareholders. And
boards will want to tell their investors that they critically evaluate their
own performance, addressing obstacles and striving for improvement.
1 PwC, 2017 Annual Corporate Director Survey, October 2017.
2 Spencer Stuart, 2016 Spencer Stuart Board Index, October 2016.
3 PwC, 2017 Annual Corporate Director Survey, October 2017.
4 PwC, 2014 Annual Corporate Director Survey, October 2014.
5 PwC, 2014 Annual Corporate Director Survey, October 2014.
6 PwC, 2014 Annual Corporate Director Survey, October 2014.
7 PwC, 2017 Annual Corporate Director Survey, October 2017.
8 PwC, 2016 Annual Corporate Director Survey, October 2016.
9 Spencer Stuart, 2016 Spencer Stuart Board Index, October 2016.
10 Council of Institutional Investors, Best disclosure, Board evaluation, September 2014. www.cii.org
11 PwC, 2017 Annual Corporate Director Survey, October 2016.