The annual board, committee, chair and director performance review - what’s rigorous and what’s not?

The annual board, committee, chair and director performance review - what’s rigorous and what’s not?

Introduction

We recently held our first Halex Consulting CoSec Forum virtual roundtable in conjunction with Nicholas Barnett BEc, CA, FAICD of Board Benchmarking . We were lucky enough to have more than 25 company secretaries, NEDs (including a couple of interested chairs) and governance professionals join an engaging debate on the Financial Reporting Council 's (FRC) proposed changes to the annual internal evaluation of board, committee, chair and director performance – specifically in terms of what is considered rigorous, and what’s not. 

The following blog summarises the discussion and highlights key suggestions for improving the effectiveness of your organisation’s annual process.

Over-boarding

Review of the proposed changes to the UK Corporate Governance Code (‘the Code’) highlights the FRC’s concerns around over-boarding. The revised Code places significant emphasis on evaluating directors’ commitments to other organisations as part of the annual internal assessment of board and director performance. Their concern being the director’s ability to fulfil their responsibilities effectively, particularly in times of stress. 

Linking Evaluations to Outcomes

The updated Code also suggests that boards should report on the outcomes of their governance-related activities, which presumably also includes the annual board and committee performance review.  

The FRC's emphasis on reporting governance outcomes sparked a thoughtful debate. While recognising that it’s easier to consider the appropriateness of ‘inputs’ to the governance process – such as the quality of board papers, for example - organisations should also consider the link between inputs and outcomes.  The evaluation process should examine whether the inputs contributed to the desired outcomes and prompt organisations to re-evaluate their governance strategies if the expected results are not achieved.  

Elements of a Robust Annual Evaluation

During the discussion, the roundtable participants discussed what might constitute a robust annual evaluation.  The FRC's consultation paper on proposed Code changes references the guidance provided by the Corporate Governance Institute (CGI) on board performance reviews.  This suggests a range of approaches should be considered including face-to-face interviews, review of board and committee papers, as well as the more traditional survey approach. The CGI guidance also suggests the evaluation should extend beyond board members and should encompass interviews with senior management, external auditors and advisors.

Challenges and Considerations

One of the challenges highlighted during the discussion was identifying who should conduct the evaluation and ensure its integrity.  Given the extended scope of review activities proposed by the CGI, it seems unlikely that any chair would have the bandwidth or inclination to run this process. Additionally, close involvement of the chair or any other board or senior executive was questioned since it would raise concerns around whether participants would be sufficiently open with their responses.  It was suggested that independent experts or other individuals within the organisation – such as the CoSec or GC - might be better suited to conduct the evaluation, ensuring impartiality and encouraging candid feedback. 

The challenge with this approach, however, is to increase assessment rigour without materially increasing the time and effort required from the CoSec to undertake this work. This is where an externally managed and benchmarked survey (such as Board Benchmarking ), supplemented with a small number of targeted interviews would provide a robust but efficient approach. 

Varied Practices across Jurisdictions

The discussion also shed light on the different practices observed in various jurisdictions. In Australia, organisations typically follow a triennial external review complemented by a lighter touch annual assessment.  Malaysia stands out with its prescriptive rules, requiring board reviews overseen by the nominations and governance committee.  

The Challenges of Developing a Robust Survey

Roundtable participants shared their experiences of developing survey-based assessments.  Challenges include designing thoughtful questions that capture the right information, addressing anonymity concerns to encourage honest feedback, and finding ways to measure outcomes effectively.  

While many organisations opt for do-it-yourself surveys, there was a shared interest in exploring the availability of online, board-focused survey tools such as Board Benchmarking.  These tools provide a more structured and efficient approach, while also ensuring a degree of flexibility to tailor the survey to an organisation's specific needs.

Aligning Evaluation with Objectives

An interesting approach adopted by one of the roundtable participants was to align the assessment with achievement of specific board objectives and goals agreed by board members at the start of the year.  

Conclusion

It’s clear that the robustness or otherwise of annual internal board, committee, chair and director performance reviews vary widely, with most organisations placing considerable reliance on simple in-house surveys. However, the benefits of regular robust challenge and focus on performance improvement are clear, if not always comfortable. 

Following the roundtable, we spoke with the FRC to get their interpretation of what constitutes robust, and they pointed us towards paragraph 113 of the FRC’s Guidance on Board Effectiveness (2018) which provides a comprehensive - but not exhaustive - list of considerations. In combination with potential adoption of the CGI guidance on board and committee evaluations, this interpretation of ‘robust’ well and truly raises expectations of what might constitute a rigorous annual board and committee performance assessment. 

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