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The Outstanding Directors Exchange (ODX) hosted a conference for corporate directors at the Sofitel Hotel in Chicago on April 24, 2008. Sheila Penrose and Alice Peterson led a round-table dialogue on implementing director evaluations.
Peterson’s opening remarks focused on best-practice processes for conducting evaluations at each of three levels:
- The board as a whole
- Board committees
- Individual directors
Penrose reviewed how the results of the evaluations get used to greatest benefit. In the course of her remarks, she made the point that “we are all peers” on the board, yet this self-assessment process requires that some directors step out of their peer relationship with fellow board members. This is not always comfortable for us.
At this closed-door directors-only session, participants compared notes on what works at their companies, and discussed the sensitivity and candor required to effectively facilitate a productive evaluation process.
Among the tips and best practices for effective self-evaluation were these:
- Whatever process is followed, the directors in the room agreed that having a candid and constructive conversation with each other about the results was a healthy and productive thing to do.
- The director participants agreed that injecting discipline and rigor into an annual process is warranted, although some companies which do a full board evaluation annually obtain individual director feedback only every two years.
- Leadership is commonly taken by, and decisions around the particular process to be followed are typically determined by, the Nominating and Governance Committee.
- Most directors today are asked to respond in writing to a set of questions. Formulating the questions appropriately is key to a successful outcome. Directors must be given sufficient time to reflect and respond – three to six weeks is normal.
- It was acknowledged that anonymous responses produce the richest feedback. (A reality is that certain directors need gentle reminders to get it done, and we don’t know who needs prodding if we don’t capture names.)
- Often the three sets of responses are returned to the general counsel for tabulation. Outside counsel is also used for processing board questionnaires, and at some companies a lead director handles the responses. The results are usually disseminated
a. First, to the Nominating and Governance
Committee chairperson (or lead director),
who reviews to see if anything needs special
handling
b. Then, committee responses to committee
chairs
and full board responses to each
director
- Handling individual director feedback requires great care. The success of this part of the self-examination process often depends on the leadership, skill and personality of whoever is charged with discussing the results with individual directors.
- For Audit Committee evaluations, Peterson suggested a 360-degree view. “Invite feedback from external auditors, the head of internal audit, the chief financial officer, and the controller,” she said.
- At the conclusion of the evaluation and discussion, disposition of evaluation materials is overseen by the Nom/Gov Committee and/or the general counsel.
Although most boards today conduct board evaluations, the individual director assessment is an area where many boards are lacking. Returning year after year to board service is not an entitlement. With the trend away from staggered boards and towards annual election of all directors, it makes sense to have a robust annual board evaluation process. Also, with shareholders taking a greater role in director elections, it is more important than ever that we have a process that assures that each director is adding value.
Sheila Penrose is the Chairman of Jones Lang LaSalle and the Co-founder and Chairman of the Corporate Leadership Center. Penrose worked for Northern Trust from 1977 through 2000 where she was President of Corporate and Institutional Services and the first female management committee member. She was previously an economic advisor to the British Treasury and an economics lecturer. Penrose earned a graduate diploma from University of Birmingham, England, a Masters from London School of Economics, and completed the Executive Program at Stanford Business School.
Alice Peterson is the Founder and President of Syrus Global, a leading provider of ethics and compliance services. Peterson is on the boards of Hanesbrands Inc. and Williams Partners. She was previously the Vice President and Treasurer of Sears, Roebuck and Co., and also held senior positions at Kraft and PepsiCo. She received a Masters in Business Administration from Vanderbilt University.
©2008 Syrus Global. All Rights Reserved.
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