Report: Director Assessments Are Lacking
Here’s how boards can improve their own performance while promoting refreshment
Jack "Rusty" O'Kelley III, Matteo Tonello
Directors & Boards published a bylined article, "Report: Director Assessments Are Lacking," authored by Russell Reynolds Associates Consultant
Jack "Rusty" O'Kelley III on the necessity of well-designed director assessments. The article is excerpted below.
Director assessments in the United States need an overhaul.
The annual board performance assessment, when conducted, tends to rely on director surveys and other self-evaluation tools. But more importantly, companies continue to forgo, or at least forgo reporting, a systematic process that extends beyond the collective performance of the board or its committees to also evaluate the contribution of individual directors, according to a recent review of disclosure documents filed by companies in the Russell 3000 index.
Only 14.2% of the Russell 3000 companies report having instituted such an annual process at the individual director level, a share that has barely grown since 2016 (13.2%); in the S&P 500, the percentage remains shy of 30%.
That’s a problem, especially in an ever-changing, business-risk environment.
Performance assessment is an indispensable human capital management tool for today’s business organizations. It fosters accountability, encourages self-improvement, informs the talent development process, and ultimately ensures the alignment of skills with the company’s long-term strategy. And it’s just as critical at the top leadership level, including the leadership of the board of directors.
Clearly new risks and opportunities abound, so directors must periodically conclude that the board continues to operate effectively and that its composition and internal competencies remain adequate to the challenges faced by the company.
Unfortunately, some of the largest U.S. companies with well-regarded boards of directors still lack a sophisticated, strategy-driven director performance assessment process. While directors have made tremendous progress in thinking about the performance evaluation of the CEO, they do not always put the same rigor and discipline into their own.
Indeed, board turnover and refreshment rates are significantly lower than in Europe and other parts of the world. It is easy to understand why. The job of the corporate director is prestigious and well compensated. It offers exposure to challenging business issues. Most board members enjoy their directorships and, justifiably, would want to prolong them as much as possible, even though changing business circumstances would warrant new skillsets.
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