Evaluating your Board: a good corporate governance practice

Is your Board performing the way it should? Is it an asset or a pain to you as CEO? Does it add value or does it suck your energy like a vampire? Are there one or two Directors who disrupt everything and need to be tamed? There is only one way to find out: do an evaluation.. We all know by now that a good Board is one of the best assets a Company can have – whether private or public, listed or unlisted. A good Board can keep the company stable in times of turbulence, guide the CEO on how to deal with thorny questions, give confidence to investors and reassure clients – and yes, it can help the company win some awards too. At Persistent Systems Ltd. , in Pune, we have a great Board, and a great process for keeping it great. Every year, at the Board’s own direction, we conduct a review of the Board’s performance, of its various committees, and of individual directors as well, including the founder/chairman. A short questionnaire has been created, and every year we strive to make it shorter and more pithy – each director fills it out and sends it in confidence to an independent third-party, who is trusted by the Board but it is not beholden to it – in this case, me. As usual, open and honest feedback requires guarantees of confidentiality – the Board must be assured that no individual response will ever be revealed to anyone, including the Chairman – and the Chairman must assure evaluator that no such pressure will be brought to bear on him to reveal it. Needless, to say, at Persistent Systems, we have a Chairman who can be absolutely trusted to do this, and mean it. We also ask each Director to evaluate all other directors, in confidence. Each director is given a summary report on his own performance as seen by his brother directors, and the qualitative comments are by far the most useful. In practical terms, what can this kind of process achieve? At the level of the Board, for instance, it can pinpoint differences in expectations between insiders and independent directors on important issues – for instance, on the role the Board is playing in risk management, or the strategic planning process. It can also highlight gaps in the Board’s composition, as these are apparent to directors but they don’t have a way to articulate them without offending someone already on the Board. The feedback on individual directors can be used in several ways – if any director is behaving in a dysfunctional manner, it is often enough if he sees that his fellow directors see it as dysfunctional – if it is not enough, the chairman f the Nominations/Governance committee or the Board Chairman himself, can have a word with him. This is often good enough to fix the problem. In extreme cases, a really dysfunctional director can be encouraged to leave the Board, if the feedback is pointed enough. AT this level, the opinion of your peers is more important to your self-esteem than anything else – few directors would choose to stay on a Board where they are seen as dysfunctional! Today, very few companies in India are conducting such reviews. In the US, it is much more common – 90% of companies conduct an evaluation of the Board, and 36% conduct an evaluation of directors (ref: ‘Boards that Lead’, Ram Charan et al)