Good governance practice asserts that a board should work to continuously improve the way it fulfils its responsibilities. To enable this, it is common for boards to undertake formal performance reviews which help to identify gaps in the governance framework and opportunities to enhance Board performance. The aim of the review is to evaluate the effectiveness of the board and may include a focus on the board, its committees, individual directors, risk oversight, culture, board composition, the chair or a combination of these.

Board evaluations may be done either internally or by use of an external consultant. [1] It is common and in fact [2] recommended for boards to undertake an internally-managed board review on an annual basis and an independent externally facilitated review every 2 – 3 years.

Use of independent third-party experts, such as VUCA, to facilitate the evaluation process is increasing. Commonwealth Government in regard to [3] government business enterprises prescribe that an independent review is undertaken every 2 years and the Charity Governance Code with regard to NFP entities recommends an independent third-party review every 2-3 years.

Where the third party is independent of the company and the board, its participation in the evaluation process can meaningfully enhance the objectivity and rigor of the process and results. Trust in the process and its confidentiality are critical for success of the evaluation exercise, for trust is the best incentive to encourage candid input and feedback from the Board members.  Third-party experts can provide new and different perspectives, both gained from their experience and work with other companies, as well as simply being from outside of the organisation, which can lead to improved development, deeper analysis and evaluation of results, actionable outcomes, and best practice.

The use of an independent third-party expert may be especially helpful when:

  • The board wants to test or improve its existing evaluation process
  • Directors may not be forthcoming and candid with an internal evaluator
  • The board believes an independent third party can objectively bring new perspectives and issues to the board’s attention
  • There is a significant strategy that impacts the risk appetite and risk profile of the organisation.
  • The board has not seen a significant change in composition over a period of time and a new perspective is required on board composition and performance
  • The organisation and its board are facing and addressing a major challenge/change
  • The board wants to demonstrate best practices and provide members with the assurance that the Board is performing in accordance with 1AICD governance principles
  • To provide validation to each Director that he or she is the right director at the right time for the organisation
  • Board wishes to demonstrate its accountability through genuine and open assessment of its effectiveness and performance;
  • Building trust and confidence in the organisation’s governance structures with donors or funding bodies.

Board evaluations can also help boards reset expectations for directors and management and strengthen the board’s relationship with management. They can also identify opportunities to adapt and advance board leadership, structure, dynamics, decision-making processes, operations, information practices, committee terms of reference and education opportunities.

Disclosures about the board’s evaluation process and high-level outcomes can enhance understanding and trust in the objective rigor of a board’s oversight by offering a valuable window into the robustness of the board’s self-assessment and its commitment to continuous improvement.

Consequently, the role of the independent third-party board evaluation becomes not only to review the current performance of the board but also to provide a development roadmap and recommendations to progress the effectiveness of the board.

The structure of an effective independent third-party board evaluation is a combination of quantitative (survey data) which is one dimensional and qualitative (one-on-one discussions) which provides richer, more nuanced, and contextualised responses.

Contact VUCA Trusted Advisors to discuss your Board Review.

Phone: 1300 944 975

Email: [email protected]

References
[1] https://aicd.companydirectors.com.au/resources/not-for-profit-resources/not-for-profit-governance-principles

[2] https://www.charitygovernancecode.org/en/5-board-effectiveness

[3] https://www.finance.gov.au/sites/default/files/2019-10/commonwealth-gbe-governance-and-oversight-guidelines-rmg126.pdf