Board effectiveness

The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. Board evaluation provides a powerful and valuable feedback mechanism for improving board effectiveness, maximising strengths and highlighting areas for further development. The evaluation process should aim to be objective and rigorous.

Board evaluation

Evaluation of the board should consider:

  • the balance of skills, experience, independence and knowledge of the company on the board
  • its diversity, including gender
  • how the board works together as a unit
  • other factors relevant to its effectiveness.

The chair should act on the results of the performance evaluation by recognising the strengths and addressing the weaknesses of the board and, where appropriate, proposing new members be appointed to the board or seeking the resignation of directors.

Individual evaluation should aim to show whether each director continues to contribute effectively and to demonstrate commitment to the role (including commitment of time for board and committee meetings and any other duties).

The board should state in the annual report how performance evaluation of the board, its committees and its individual directors has been conducted.

Like induction and board development, evaluation should be bespoke in its formulation and delivery. The chair has overall responsibility for the process, and should select an appropriate approach and act on its outcome. The senior independent director should lead the process which evaluates the performance of the chair. Chairs of board committees should also be responsible for the evaluation of their committees.

The outcome of a board evaluation should be shared with the whole board and fed back, as appropriate, into the board’s work on composition, the design of induction and development programmes, and other relevant areas. It may be useful for a company to have a review loop to consider how effective the board evaluation process has been.

The UK Governance Code recommends that FTSE 350 companies have externally‐facilitated board evaluations at least every three years. This is echoed in the Federation’s 2015 code of governance. Whether facilitated externally or internally, evaluations should explore how effective the board is as a unit, as well as the effectiveness of the contributions made by individual directors. Some areas which may be considered, although they are neither prescriptive nor exhaustive, include:

  • the mix of skills, experience, knowledge and diversity on the board, in the context of the challenges facing the company
  • clarity of, and leadership given to, the purpose, direction and values of the company
  • succession and development plans
  • how the board works together as a unit, and the tone set by the chair and the CEO
  • key board relationships, particularly chair/CEO, chair/senior independent director, chair/company secretary and executive/non‐executive
  • effectiveness of individual non‐executive and executive directors
  • clarity of the senior independent directorʹs role
  • effectiveness of board committees, and how they are connected with the main board
  • quality of the general information provided on the company and its performance
  • quality of papers and presentations to the board
  • process the chair uses to ensure sufficient debate for major decisions or contentious issues
  • effectiveness of the company secretariat
  • clarity of the decision processes and authorities
  • processes for identifying and reviewing risks
  • how the board communicates with, and listens and responds to, shareholders and other stakeholders.

The National Audit Office published a board evaluation questionnaire specifically for public sector boards that members may find of interest.

Further information