Governance and Board Performance Problems

Few governance issues are more complex than assessing the performance of boards. Evaluation of board performance is more art than science, as there is a synergistic link between the management, firm, and board outcomes. It’s not always easy to determine. For instance the board may be good at governing the business, but shareholders are unhappy with the low return on investment. The board could have acquired management and governance issues and is working hard to change the situation. It could also have invested in new strategic initiatives, and created the turnaround plan.

In other instances the board may be too involved in operational issues and making decisions that are best left to the management team. These situations can be exacerbated if the board isn’t making use of a suitable process to assess its members. It is easy for small problems to become serious issues, which could affect the effectiveness of a board.

The board could have cultivated an informal culture that doesn’t take its performance assessment responsibilities seriously. It could be because the board doesn’t have the proper systems to collect performance data or the skills needed in a boardroom for executing its evaluation responsibilities.

Boards must not just have the appropriate skills, but also be open to the results of the evaluation. The board should prioritize areas that need improvement, and work with the management team to create an action plan. This could include arranging regular board training on relevant subjects to increase knowledge levels across the board, and address information gaps.