Providing feedback to directors on their performance in the boardroom is not a new idea. The first time I conducted a director peer review was in 1997 for the board of the Bank of Montreal, one of the first major North American companies to undertake the process. More than a decade later, many boards are looking to implement a director evaluation process for the very first time. Others that have tried it have met with mixed success: Some boards have found it among their most useful practices; others, a waste of time. If this is an issue your board is wrestling with, here are four key factors to consider.
1) Be clear about your objectives.
While some boards want to adopt director evaluation as a "flavor of the month" good-governance practice, most genuinely want to use it for their board's professional development—giving directors useful feedback as to which boardroom areas they are most effective at and where they might improve. If that's your aim, the only process that will get you there is a director peer review that engages all board members in providing constructive feedback to fellow directors.
Having directors rate themselves against a list of such criteria as "I come to meetings well-prepared" or "I ask good questions" has limited value from a professional development standpoint. It can serve to reinforce what is expected of directors, but little more. Other processes—whereby, for example, the chairman calls up each director prior to the proxy being finalized and asks, "is there anyone we shouldn't renominate?" achieve little in director development. They offer no discussion of a director's strengths or of areas where improvement is needed.
2) Select a format that will provide constructive feedback to your directors.
Although I have used surveys for a director peer review, I abandoned this practice in favor of an interview format years ago for several reasons. Providing directors with a score on their performance is meaningless. One director who had gone through this type of evaluation came to the next board meeting demanding to know what his peers meant by rating him a 3.6 out of 5. "I have no idea what I'm supposed to conclude from this. What are you trying to tell me?" he asked.
Even worse, this format too often invites fairly hostile comments. I have seen directors write such things as: "She is a piece of work" or "The worst director we have." These comments do nothing to abet professional development, creating bad feelings instead. Using an interview format enables this sort of remark to be followed up with such questions as: "Can you give me some examples of what she does or doesn't do that has prompted you to say that this person is the worst director you have?" When board members face specific examples, they can use them either to improve their performance or to cease behavior that they didn't realize was having a negative impact.
3) Determine who will collect and deliver the feedback.
Having any member of the board involved in gathering feedback from directors about their peers can inhibit candor. Typically, directors hold their fire on board members who may have shortcomings but are close friends with the director who is soliciting feedback. This approach can also make directors reluctant to raise thorny issues, keeping the discussion light and superficial, which is why boards often choose a neutral third party to collect feedback.
If that is the board's chosen route, it doesn't mean that evaluation results have to be delivered by that party. If the nonexecutive chair, lead director, or chair of the governance committee is skilled—and comfortable—at delivering performance reviews, this person can be fully briefed to meet alone with each director to discuss his or her evaluation.
4) Consider whether the director evaluation will factor into renomination decisions.
Some boards begin with the assumption that if they are going to undertake a director evaluation, the nominating committee will review the results to decide whether or not to renominate board members. This is an open question. I have seen several boards introduce director evaluations quite effectively by designing the evaluation only for professional development purposes; their directors receive individual evaluations that are not shared with the nominating committee, governance committee, or anyone else.
While it may seem counterintuitive, this approach often works well for two reasons. First, it enables a director peer review to be introduced in a way that makes board members comfortable with the process before significant consequences are attached to it. Second, most board members respect the comments of their fellow directors and take them to heart, even if they realize no one else will see the results. The first time I worked with a board that took this approach, one director resigned when he received feedback that said he seemed "disengaged" and "unprepared." Although no one else saw those comments, he felt prompted to call the lead director, admit that he was experiencing significant problems at his own company, and offer to step aside so that the board could replace him with someone who could make a greater commitment.
Boards have traditionally done a poor job in the area of performance management. Fearful of creating awkwardness and poisoning board collegiality, they have used age and term limits to turn over board seats—rather than holding constructive discussions with directors to reinforce their strengths and contributions, as well as bring to the surface things that may detract from their performance and affect the boardroom. Implementing a constructive director evaluation is a hallmark of a board that takes performance seriously and is willing to make sure that its directors are operating at the top of their game.