: UNIT 7 BOARD EVAL TION AND TRAINING Objectives te: After reading this unit, you should be able to: + xplain the need for board valuation « Enumerate the categories of board valuation. «Identify the Preliminary requirements for e Ascertain the essentials of Performance « Explain the steps involved in valuation Procedure, « Describe the benefits of board evaluation. « Understand some aspects of board training. board training evaluation of the board. Structure 7.1 Introduction 7.2 Need for Board Evaluation 7.3 Categories of Board Evaluation 7.4 Preliminary Requirements for Board Evaluation 7.5 Essentials of Performance Evaluation of the Board 7.6 Steps in Evaluation Procedure 7.7 Benefits of Board Evaluation 7.8 Board Training 7.9 Board Manual 7.10 Strategies for Board Orientation and Training 7.41 Summary 7.12 Self-Assessment Questions 7.13 Further Readings made by the Board heightened focusent Structure of » Governance i f performance and devise in help ascertain the existing levels of perf d de erates e ibe the areas of deficiency. The anticipation of evaluation itself implores the board members to endeavour to improve their performance. The increased interest in board evaluation has occurred oe to oo accountability raised by stockholders, government agencies, ane Senay pe Ss Strict enforcement of laws and increased law suits against be ea 1° need for periodic evaluation so as to highlight the deficient areas of proficiency. Regular performance evaluations have the following potentials: ') Identification of issues that are put aside during the normal cour business. ii) Identification of strengths and weaknesses that affect oj the board or individual duties lll) Helping individual incumbents such as the CEO, board members to assess their growth and progress in their resp 'v) Reinvigorating the board members to work as a tear effectiveness and Ensuring that the board takes it work seriously, ptimal 7.3. CATEGORIES OF BOARD Board evaluation should extend to the followin 1) Evaluation of the Board as a Group In striving for improved Performance, the e imperative. Each member of the board evaluation form about the board's performat The exercise must be undertaken on an al discussed by the board as a whole with criterion of effective board must be its cay 2) Evaluation of Individual Board M ¢ Self evaluation * Peer review The process of director non-confrontational evaluation should b7.4 PRELIMINARY RE Rute EVALUATION CU/REMENTS FOR BOARD programme. 4) Evaluation Policy Every organization. must have a formal meaningful, it must be conducted on an annual i should be one by the Chairman of the board Inputs Cay Sareea Peers on the board. The Process and time table of director Policy of director evaluation. To be 2) Evaluation by Whom One of the best strategies will be entrust the task of evaluati consisting of outside independent directors. It will oven nents ae necessary autonomy to set and apply its own standards. There is no bar on executive directors and CEO Providing requisite inputs to the task force. The practice of independent evaluation of board is well established in the USA and the UK. For instance, in the USA, the task of board evaluation is assigned to the corporate governance or nomination committee. In the UK, the practice i appoint the non executive Chairman as facilitators of board asses commentators support the use of third parties to oversee ¢ development and feedback procedures to preserve anonymity and i nte process. Thus, various alternative agencies for evaluation may evaluation by the board or a board committee, evaluation by a outsiders or by an outside consultant. 4 3) Procedure of Evaluation The basic objective of the board evaluation exercise is to ' improvement in board performance. Hence, the first step establish the responsibilities and objectives of performance concentrate itself on three or four main issues which it w next three years. Then the rating of the board may be d five or as a percentage of accomplishments. The boar benchmarked over time. Top on the list of determination as to whether the board has achieved and non financial or strategic goals. Having determined the procedu depend on board's ability to di ensure the maintenance of stitructure of nance * Annual Audit. rescribed for all and one, But what is most essential is that th Sener a done both of the board as a group and the individual tee, members, As regards ‘what’ is being measured there are a wide variety of objective and subjective factors. Methods range from checklist type guidelines to more formal approaches which include “180 and 360 degree assessment. benchmarking against best practice, interviewing and psychometric testing, Items included in Board Evaluation Criterion The following is a suggestive list of items that may be included in the evaluation of the Board as a whole: a) General * Board's understanding of company's business adequately. * Board's awareness of competition. ¢ Time spent by the board on long term strategy. * Extent of balance of power between the board and the CEO. * Board's access to information from sources other than management. * Board's mission, goals and bylaws. * Board members’ understanding of their roles and duties. * The quality of job description ¢ Members’ commitment to the board. * Board's use of committees and the quality of terms of reference of committee. * Diversity of board's composition and the board’ stakeholders. * Quality of relationship between board members as also bet and the organization. * Quality of communication between the board and ti * Board's policies. j * Efficiency of board meetings, decision making Participation. ¢ Quality of board's written work plan. Board's ability to address conflict effectively and 's ability to accurately re The board should have the results of assessms each member. A portion of the meeting time ¢ discussion of the evaluation, b) Legal Compliances * Degree to which board members at c) Financial Matters Review and updation of Review of insurance pro Approval of capi Receipt of regevaluation with lists of questions relating non-executive directors. The Higgs Committee Report (2003) h 5) Timing of Evaluation The annual review of the individual director . sl jhmakes sense 10 Sonducs uelngldua) ae Place prior to re-election come up for re election. A beginning may be made ee same time as directors director may assess his colleagues anonymoush "Nh peer review in which each consolidated. The feedback may then be. conv ly. The results May then he 6) Ensuring a Comprehensive Evaluation Good evaluation besides depending on form: i - lal account continuous informal feedback. An intone oe Process must take into prevent a problem from escalating, It can also aluation and counsel can relationships between board members and the chara open, trusting Therefore, a comprehensive system of board evaluati Ree: following: luation may comprise « Formal evaluation « Informal feedback e Inputs from peer group « Self evaluation « Intermittent observations .« Formal rating system ¢ Open ended discussion The board has an important role in the conduct of bo his duty, the chair must display tact and sensitivity must strive to understand the perspective of. same time, the directors being evaluated s evaluation is to assist them improve P being emotional and defensive during tl will negate the positive benefits aris! y A straight forward way of eval how well each of the assigne year. This will help identi Generally, self appra7.5 ESSENTIALS OF PERFORMANCE EVAL _OF THE BOARD The Right Culture It is essential to a fair Programme of evaluation that the board encourages g culture that promotes candid communication and rigorous decision makin, ‘directors and managers must work together to achieve a constructive interaction /.€. a healthy atmosphere of give and take. 1) The Right Issue: The board in conjunction with management should focus on those issues that will help the company maximize long term shareholder value, 2) The Right Information: No meaningful evaluation can be made unless directors have obtained, analyzed and understood the relevant information which is necessary to arrive at informed decisions, The directors may, on their own, seek information needed to Clarify an issue provided the request is made within a reasonable time frame. ‘ The Right Process: The development of an evaluation Process. should Proceed in stages ranging from CEO evaluation, to full Board Value individual directors’ self assessment and finally Peer evaluations, , To evaluate itself, the board must firstly compile a description goals and objectives and then set about those responsibilities. f OLS ares 5) The Right Follow Through: To clearer understanding and stro ng Strategic asset. After wei The actual procedun may consist of the follo4) Motivational Effect os 3 Board evaluation leads to Motivati tion of results of evaluation recogniz, ards act'e board board can reinforce board’s cea cheverens, Re a eraliton oe beard can renore boards ‘egular evaluation of the Organization Many boards. can pass can be leg evaluation keeps the board on track Of the path to their goal, Regular 2) Goal Establishment ag = Fl the board’s processes and assist with estabiching wos il artement within ‘oncern, it cannot have the Es See ou PPortunity to address them. Regular evaluations are ven Ind to foster a forward Momentum in the board's 3) Board’s Accountability Board evaluation is a mechanism i to organizati boat accountability to its vision, commitment to Seno : eee fesources. lolders and responsibility for its 4) Board’s Development Knowledge of level of performance coverts the board to a reflexive board, Such boards are in a better position to contribute to organizati . develop themselves through past experience. ganizational performance as they : 5) Diagnostic Tool Board assessment is a kind of diagnostic tool. It can foster of the strengths and weaknesses of the board and individual dir Criticism of Board Evaluation 1) Despite theoretical support for the concept, in p degree of opposition to the implementation of evaluation programmes. This is out of the fe upset the collegiality and sense of trust that Another line of criticism is based on the fact board and director performance are evaluation is also relatively ul evaluation contributes to board € 2 Board Member's Self Evaluation Do you have opportunity to and 2Through scheduled through your own initiative, have you had the opportunity to get to know the fellow board members Please indicate your three strongest areas of expertise based on your background and ‘experience: + Budget/Finance + Investments * Management + Planning + Legal matters + Plant management + Real estate * Fund raising * Public Relations + Marketing * Other Indicate three areas outside of your background and expertise. Are you comfortable with your attendance record at Board and Committee meetings? Do you read the minutes of the meetings to determine whether they faithfully represent the decisions taken? Do you consistently and thoroughly familiarize yourself with the information Provided to you in advance of the meeting? Do you find your organization's financial Statements intelligible? Are you satisfied yo Perceived conflicts service as a Board m Have you four stimulating and re joard programmes or78 BOARD TRAINING ————____ under the non-mandatory provisions of Clat use laa sted ios Company seve to train its Board ie Lstng Agreement, a ees i € risk profil "mbers in the busines: company, their responsibilities ag directors and the peepesess Parameters of aad Y to discharge them If i P , Teese for board efecivanand a2 C2™M8Y knowledge. impera WENESS and for enabling di nd_understanding directorial role and responsibilities. 9 directors to discharge their Board Training must be distinguished from Board Ori i training is designed to provide Organization Scaune ieee Soren such as the place of board meeting, the composition of bo: See ee ard, the backgrounds of The selection of topics for training and the the nature of needs of the organization. methods of training would depend on Guidelines for Board Training i) Board training should be conducted on there are new members. ii) Preferably, board training should be organized shortly after elected to the board. This kind of scheduling hele new ee grasp their role and contribute to the success of organization. This kind of training arrangement would increase participation and a sense of fulfillment to. the board members. ii) The design of the training progrmme may be determined by the CEO board chair. Ideally, this task should be entrusted to a separately “board development committee”. CE a year irrespective whether or not The results of board's self evaluation can provide useful topics of training. BOARD MANUAL A written rd manual is an indispensable tool in | board per Though not a substitute of face-to- render training so much easier. A board manual fun new board members’ orientation as well as The exact contents of board manual may d following information is generally includ S* ¢ Mentoring Senior board members may be deputed to mer procedures and other salient features of the coca: Ney eters cea « Orientation retreat Itis a kind of get together of the board veterans and n annual feature. The retreat serves as a good fetleshen Ge Dane Rade relating to company’s mission, values, services, long range plans and operations. Moreover, all board members new and current alike will get to know each other better and feel more comfortable at the first formal board meeting. : 7.11 _SELF-ASSESSMENT QUESTIONS To justify their existence, boards need to be evaluated in terms of their contribution in enhancing the quality of corporate governance. Periodic evaluation helps ascertain the board's efficiency and independence as well as ward off the possibility of a latent scandal. Evaluation enable individual directors, CEO and the board chair to know their respective strengths and weaknesses as also assess their growth and progress. The evaluation may extend to the board as a group. and also be concerned with the assessment of individual directors. In undertaking board evaluation certain preliminary matters need to be sorted out. For instance, a corporation must craft an evaluation policy, determine the procedure criteria, and the personnel who would be entrusted with this task. The inventory of items. which shall go into the process of evaluation and the timing of evaluation must b determined beforehand. In any case, the goal should be to achi comprehensive 360 degree evaluation. Any evaluation of the board directors must be founded on the existence of a right culture, fo issues, right processes, and an appropriate follow on. Board evaluati stimulant, exhorting the board to be concemed with its de shedding off weaknesses in personality or performance. 712 SELF-ASSESSMENT QUESTIONS 1) 2) Whatis peer review? — 3) Which ten matters you would like to be ii measurements? Explain the essentials of performance ( What are the benefits of board ti740 TRATEGIES FOR BOARD ORIENTATION AND STRAINING. Soe ee the Performance of nd Taylor in their book entitled “Improving Sa resets have! listed a number of strategies for board orientation and training. Some of these are described below’ » New Board member's orientation programme i ‘haracteristics, information ‘A core curriculum including mission history, unique ¢ i about external environment, financia! information and other matters of basic concern may be developed. A part of the orientation may be through audio and video, Ongoing board education and training Content for such training may be developed on the basis of information procured through board assessment where they may identify strategic issues that require board's priority attention and the information needed to address those issues. ¢ Incorporating training into each board meeting Directors may also be provided training during regular scheduled board meetings. This could be done by providing new information that the board may need to address the emerging issues. Sometimes, it can be done by means of a brief presentation by an outside resource person. Training of this kind however must be short, focused and well prepared, ¢ Mini Seminars These could be scheduled as part of the regular board meeting or held at other times. Short presentations and discussion sessions are organized around a special topic of interest. - ° Study Groups These can consist of small number of board experts. Their task is to become well i thereafter share this knowledge with other by * Committee Rotation Another effective method of board | opportunity to serve on different bo of providing opportunity for new le work of each committee. ¢ Publication and Confel The board members may b : relevant topics, There are programmes for dire * Peer Educat An excellent wa each other. Th