It is worth the occasional reminder of the value and benefits to a board of having an independent third party conduct the annual board evaluation from time to time.  Occasionally bringing a different perspective to the process and taking a closer look at how the board is functioning just makes sense and can lead to a more effective board.

When the same people, often using the same approach, conduct the board’s annual evaluations, we know that the process can become rote and new information is unlikely to surface.  Further, the typical format and approach often doesn’t lend itself to teasing out subtleties.  Bringing in a third party corporate governance consultant to conduct the evaluation changes the dynamic and can offer a different perspective. We are likely to ask questions board members have not been asked before, the responses to which can be very useful.  Board members are often more candid with a “trusted stranger” brought in to conduct the evaluation, and in turn the governance consultant can be more candid with the board, and when providing feedback to individual board members. Once any issues are identified, the board and management are then able to make adjustments resulting in improved effectiveness of the board and the individual board members.

Boards and investors have noticed these benefits and we’ve noticed that the demand for a third-party board evaluation is on the increase.  The next step is for the board to determine who is best suited to conduct their evaluation – what governance background and experience makes the most sense for a particular board.  It is about finding a good “fit” for each board. 

Below is an updated version of our popular “What to Look For When Hiring a Governance Consultant to Conduct a Board Evaluation” to help you as you think about having a third party independent corporate governance consultant conduct your board’s evaluation.


 
There was a discussion recently in the Society for Corporate Governance Huddle about whether to allow board members to print board materials from the board portal.  I responded gently (I thought) that board members and executives should be allowed to print board and committee materials if that made doing their work easier.  In one response the company prevented board members from printing board materials and even if requested, would likely not change their policy.  
 
It occurs to me that because there is a feature in the board portal to turn the print function off, some might believe that is an acceptable or appropriate step to take in connection with board materials so that directors can only read board materials through the board portal.

Below is an excerpt from a portfolio my colleague Cherie Sorokin and I drafted on the Role of the Corporate Secretary.
 
“Responsibilities of the Secretary
 
Much of what a corporate secretary does is designed to facilitate the board’s and the individual board members’ efforts to meet their fiduciary obligations as well as other legal and regulatory requirements.  Making sure that directors have access to needed information and that meetings and meeting arrangements run effectively and smoothly are major aspects of this role….”[1]
 
Preventing board members from printing materials they are supposed to read, understand and be able to make decisions about could be viewed as preventing or hindering them from meeting their fiduciary duties. 
 
I’ve always been of the view that it is important to respect how board members learn and work.  When in-house it was our responsibility to educate and remind our board members about the need to securely destroy any materials and notes or to bring them to the meeting so that we could.  At one point I had a board member who was dyslexic and wanted certain materials on paper and another who marked up her paper copy of some materials as part of her learning style.  They would have been hindered in their ability to be effective board members had they not been able to print out certain board materials, and I suspect insulted or worse if we told them they could not print out board materials.  Both of these individuals have been board chairs and board members on various boards for some time and they know how to treat sensitive materials.  Our role was to help them both access and then dispose of those materials.
 


[1] Excerpt from Kristina Veaco and Cheryl Sorokin, The Role of the Corporate Secretary: Facilitating Corporate Governance and the Work of Corporate Boards, III.C. Support to the Board of Directors, 96 Corporate Practice Series (BNA)

My colleague Cherie Sorokin and I are in the midst of a skills assessment for a public company client, and are reminded again of the value of doing such an exercise. 
 
While there are several ways to conduct a skills assessment, in our opinion an assessment will work best if board members themselves are actively engaged in the determination of desired board skills needed to further the company’s current strategy, and also participate in the identification and ranking of their own skills.  In any event, a skills assessment needs to be tailored to the individual company and board in question.  There is no absolute “standard” set of skills or areas of expertise for directors, although there are some common to most companies such as financial expertise.  The process should also include a comparison of the board’s skills and experience to those that other boards may think are important areas of expertise, i.e. a comparison to what might be considered “norms” or governance trends generally in certain areas.   Annual governance studies published by major consultants or professional governance organizations often report skills and experience responding board members believe are important to have on their boards.  That said, the skills assessment must take into account the situation in which each company and its board find themselves at the time of the assessment regardless of what other boards may find desirable.
 
Additionally, as part of a skills assessment board members may be given the opportunity to describe what each brings to the board, beyond such simple biographical listings as “public company CEO “or “retired Chairman.”  This can allow for some self-reflection about individual contributions.
 
When the information is all analyzed and collated, the resulting skills matrix (matching directors to specific skills)  becomes a tool which can be used in many ways:  as a tool to focus new director recruitment when there are current vacancies, or when obvious gaps in particular skills or backgrounds have been identified;  as a succession planning tool for when current members move off the board; as a road map for further board or individual director education and training; as a basis for discussion with investors re board composition. The skills assessment can also be used by the Governance Committee as part of the board’s evaluation of its effectiveness based on the company’s current strategy.
 
Going through the exercise of a skills assessment is not a one-time event.  The resulting skills matrix needs to be a living document, adjusted as the company’s strategy and operational needs change and as board members come and go.
 
Increasingly public companies are including skills matrices in their proxy statements to display their board members’ skills and experience to their shareholders.
 

​Corporate governance consultants, accounting firms, executive search firms, business consultants, management consulting firms, law firms, and other organizations such as the NACD and BoardSource (mainly for nonprofits) offer governance audits, board evaluation services, and other governance services.  More recently, board portal providers and providers of online board evaluation services have joined the list, some offering an array of standardized online questionnaires and reporting formats. 
 
The first issue will be the nature of the project, and then the type of firm or individual that will best suit the needs of the organization for the particular project.

• What array of services does the firm or consultant provide in the governance area?

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• Is corporate governance a primary area of expertise and focus, or one area among many others?

• Is there a particular focus to the firm’s or consultant’s approach?
  • E.g., overall governance effectiveness, fiduciary/legal responsibility, compliance, risk management, organizational development, executive compensation, interpersonal skill development or relationships

• How long has the firm or consultant been engaged in governance consulting?

• How did the consultant acquire his/her expertise for the particular service?

• What is the firm’s or consultant’s approach to conducting governance studies?
  • E.g., standardized or tailored questionnaires, online responses, oral interviews, comparisons with peers or trends, de novo study, building on the company’s past efforts, written report of findings or tally of responses, written recommendations, oral presentation of findings and recommendations

• Is the firm willing or able to tailor the approach to meet the company’s needs or expectations?

• What is the background and experience of the person or persons who will be doing the work or tallying online responses?  E.g., legal training, management or human resources consulting, risk management or audit expertise

• What type of governance study does the board want and what is the scope of the project under consideration?  
  
  • E.g., audit of current practices, analysis of current board effectiveness, review of committee practices and effectiveness; director self-evaluation; director peer review; evaluation of chair, lead director, committee chairs; evaluation of the board’s relationship with the CEO; implementation of recommendations; focus on particular substantive areas; help with a known problem such as disaffected directors or confusion over the board’s role; education of the board on governance trends
    

• Is the scope of the work desired a good fit with the experience and expertise of the consultant or firm?

• What is the experience of firm or consultant with different types of boards?
  • E.g., public, private, nonprofit, pension fund, government entity, large organization with substantial staff, small organization with few staff

• What has been the actual boardroom experience of the firm or consultant?
  • E.g., involved as corporate secretary, CEO or other business executive, director, consultant to the board or a committee, general counsel or attorney

• What experience has the firm or consultant had in actually implementing governance processes and practices?

• What is the firm’s or consultant’s reputation in the corporate governance arena (including in the case of a firm, the individuals it uses to provide governance consulting services)?

• Is the personality of the consultant or the individuals providing the services a good fit with the board and/or the CEO? 

• What are the considerations when thinking about using outside counsel to conduct a board evaluation or tally the results?

• Is your outside counsel qualified to conduct the evaluation - are they experienced enough in board process, board culture and what the issues are for particular boards; will board members be candid with your outside counsel in interviews given their existing relationship with the company, and if so, does the board want potentially sensitive information about individual director performance with outside counsel for the company

• What steps are taken to protect the confidentiality of individual director responses and will the attorney-client privilege apply?
  
  • E.g., are the governance consultants also lawyers?
    

• Is the consultant or firm known to members of the board?
  • E.g., by general reputation, by work done for other boards on which directors serve, as a result of other consulting services the firm or consultant is providing or has provided to the company

• What other companies have been clients of the firm or consultant and what was the nature and scope of the services provided to those companies?

• What is the quality of references provided by the consultant or firm?

• How long is the project expected to take?

• What will management’s role be?
  • E.g., will the CEO and other top executives working with the board be interviewed; will results of the work be reported to the management team separately; what role will management have in implementation of recommendations; who in management will assist in scheduling and in responding to both director and consultant questions/needs during the course of the project

• What will be expected of directors and how much of their time will be needed?
  • E.g., are all directors willing to participate, will in-person or telephonic interviews be part of the process, how much time will it take for directors to complete questionnaires and/or be interviewed

• What is the desired process for reporting results?
  • E.g., tallied responses to standardized questionnaires, written and/or oral analysis and presentation of responses to tailored questions and oral interviews to the full board, to the full Nominating and Governance Committee, the board chair, chair of Nominating and Governance Committee, to the CEO, to each committee evaluated, to the management team, and for director peer reviews, to directors individually

• Are the proposed fees reasonable given the scope of the project?

• Fees for governance services, including board evaluations have risen based on the scope and complexity of the project.  Using standardized online questionnaires will be less expensive than using an experienced governance consultant, and also yield different results.

 
Given the number of providers of corporate governance services, having some sort of process to screen firms and individuals will facilitate finding the right firm for the particular governance project.