• Evaluation of Evaluations
  • December 9, 2013 | Authors: Larry A. Cerutti; W. Brinkley Dickerson; David I. Meyers
  • Law Firms: Troutman Sanders LLP - Irvine Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Richmond Office
  • Have you thought about your board evaluation process lately? It usually does not get much attention, and often its only purpose on the agenda is to enable a company to certify that it has complied with a stock exchange’s annual requirement of evaluating the board and key committees.

    Our role with clients’ board evaluations varies widely. We helped some clients develop their evaluation questionnaires when the stock exchanges first imposed the requirement. For others, we update the questionnaires periodically, and for a few we receive the questionnaires and summarize and report on the results. But whatever our touch point, it has become clear to us that the current evaluation process, as implemented at many companies, provides less meaningful benefit than it could.

    The questions are well-meaning, but often are not designed to elicit useful responses (although their substantive focus is much improved over ten years ago - no more "care and comfort" questions). Most companies now use questionnaires with 15 to 25 questions providing for both a quantitative response (“On a scale of 1 to 5...”) and space for comments. The quantitative responses tend to be “average” or slightly above average. The comments do not seem to fare much better in terms of usefulness - often, a few directors will provide comments, but the majority of directors will not. Of course, the views of those few may or may not be representative of the entire board. The nature of the responses reflects the fact that directors are busy, and most simply do not have the time or patience to complete a questionnaire of this type thoroughly or to engage in discussions of board processes unless pressed. In addition, most directors would rather not go on record as critics of board processes.

    How can you improve the process? It is not easy, but our experience leads us to believe that, when it comes to questionnaires, less is more. For example, if a questionnaire asked just two questions, most companies probably would get more benefit than they do from the current questionnaires. Those questions? “What two items should we spend more time on?” and “What two items should we spend less time on?” With just a couple more questions, a company could get an even better picture of how to improve its board process. For example, “How can the company improve the information that you are provided between, and in advance of, meetings?” and “Who within the company would you like to spend more time with?” This last question recalls a The Wall Street Journal story from a few years ago about the board members at a major bank who had to go through a series of secret meetings with internal candidates for the CEO position because the board members had never before even met them. But in any event, the goal would be to reduce the reliance on the currently popular quantitative approach and try to elicit better, and more thoughtful, comments.

    Old habits are hard to break, and we do not think companies will, or necessarily should, completely abandon their current practices. However, as you are considering your evaluation process, you may wish to consider refining the questions, and perhaps reducing the number of questions, to elicit the most helpful information possible.