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Corporate Governance

Effective Performance Evaluation of the Board

This book addresses key practical issues, supplemented with easy to implement checklists, of how to evaluate performance of the board of directors in the corporate world

Shiraz Ali

Copyright © 2017 Saleh Hussain. All Rights Reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise without the permission in writing of the Author.

Published in eBook format by eBookIt.com

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ISBN-13: 978-9-9901-0389-2

WORDS OF THANKS

INTRODUCTION

Thanks to the increasing importance of Corporate Governance, the role of board of directors of any company is placed under a lot of emphasis and scrutiny and the choice of any one director is subjected to a disciplined process of selection to ensure suitability to the post.

The selection process is now entrusted to the Board Nomination Committee which undertakes the issue of first putting in place the prerequisites for related experience, qualification and skills of the directors of the Board. The committee gets also involved in giving the board an independent opinion on the re-election of the board members. To do that, the committee must be in a position to evaluate the performance of the members based on predetermined set of key performance indicators “KPIs”.

The board performance evaluating is becoming a regulatory requirement as well as a best practice phenomenon. The regulators would specify the need to undergo the evaluation process of the work of the board collectively and the performance of directors individually. They further specify the frequency of such process to be an annual undertaking.

Devising the appropriate and clear policy of board evaluation is the first step towards achieving and putting in place a roadmap for process. Selection of the methods through which the process of evaluation is conducted is a very important step towards paving grounds for balanced and effective system in the company.

In this book, we will look at the various policies that could be devised for evaluation of the performance of the board, board committees, and directors of the board. The different methods of evaluations will be discussed as well with deliberation on effectiveness of such methods. We will also shed light on the way the evaluation is made and how results are analyzed so that the board can review and make corrective actions to further enhance and improve the work of the board.

We strongly believe that the results of the evaluation will lay solid grounds for better process of directors’ performance evaluation and improve the devising mechanism of the KPIs of the board and individual directors in the company. Board’s various committees will too benefit from such process to ensure that these committees discharge their respective responsibilities in the way they are expected to.

The issue of the role of the Chief Executive Officer “CEO” in the company and as a member of the board will be discussed in details in this book. There is a growing concern in the world of corporate governance on this issue between those supporting the appointment of the CEO as board member and those who see it as conflicting with his executive role as leader of the management. The pros and cons will be deliberated.

In the appendices section of the book, we will give specimen of templates used for the evaluation of the board and committees, so that the interested readers may customize to suit their own policies. We hope that readers and corporate governance practitioners would benefit from this book and will work towards further improvement of practices in their respective companies.

Saleh Hussain

August 2013