A closer look at the board review process:

Playing possum and wrestling wombats

The 1998 UK Hampel report (http://www.ecgi.org/codes/documents/hampel.pdf) called for formal procedures to ‘assess both the board’s collective performance and that of individual directors’ (3.13). But research three years later by PricewaterhouseCoopers showed that only a third of UK companies did so. I’ll focus in my next few blogs on the first of the two-part review structure, with the question...

What does a board review involve for the board as a whole?

Research has shown that the typical corporate governance indicators, such as board structure, the independence of directors, and the use of board committees, are not the best predictors of board effectiveness. Less specific indicators, sometimes called ‘soft’ governance, such as the working relationships between directors, the standard of chairmanship, or directors’ knowledge of the company, are more significant.

Information for a board review is obtained from an analysis of board and board committee agenda, papers and minutes, from interviews with each director, company secretary and staff, top executives, group discussions, and director workshops and from interviews with investors, auditors, analysts and internal staff.

In terms of the collective board, a competent and regular board performance review should:

• Ensure that appropriate disclosure and accountability are being provided
• Review current board and board committee practices and improve efficiency
• Review the effectiveness of the board’s strategic thinking and decision making
• Provide an ongoing challenge to attitudes in boards with long serving directors
• Create the climate if a change of chairmanship is needed
• Provide information for the board’s corporate governance report and respond to questions from shareholders and other stakeholders

For the board assessment section of the overall review process to be focussed and fruitful, it’s vital that directors resist ‘playing possum’, as the Australians say, hiding themselves and their activities. An open attitude and clear objectives, such as the ones above, will prevent the board review process from becoming a paper shuffling, box ticking WOMBAT (waste of money, brains and time) and instead constitute an efficient use of resources with highly relevant outcomes.