Board Evaluations

Introduction Functioning of a Company rest with the Board of Directors. Directors set tone at the top, challenge Management constructively, take crucial decisions, and guides long-term value creation. To ensure that Directors are discharging their duties, role and responsibilities appropriately, it is necessary to periodically review their skills, performance and individual contribution etc. As an effective Board is critical to organizational success, Board Evaluation serves as a key tool to ensure Board is working optimally in alignment with Company’s goals and contributing meaningfully in Board deliberations.

**Understanding Board Evaluation and its process What is Board Evaluation?** Board Evaluation is a structured process followed by Board to review its own performance with the objective of improving its effectiveness. The process helps to understand what works well and identify areas for improvement. Evaluation includes reviewing the performance and functioning of Board, each Director, Chairperson and each mandatory committee.

What is the Need for Board Evaluation? As a Board plays a pivotal role in steering shape of an organisation, Evaluation ensures that crucial decision-making body is operating at its peak efficiency.

Evaluation is just not beneficial but necessary for success and survival due to following reasons- i. Helps to understand performance gaps and prepare improvement plan. ii. Ensures adaptability to change. iii. An open and honest communication channel is built for sharing ideas and concerns freely. iv. Helps in preparing a succession plan. v. Helps in aligning Boards priorities with overall strategic goals. 

Scope of Board Evaluation a) Who is Evaluated? — According to the provisions Section 178(2) of the Companies Act, 2013, Evaluation of Board, its Committees and individual Directors shall be carried out in the manner as specified by the Nomination and Remuneration Committee. Whereas as per Regulation 17(10) and 25(4) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Evaluation of Independent Director shall be conducted by the entire Board and Independent Director shall review the performance of Non-Independent Directors, Board, its Chairperson. b) Methods of Evaluation- The evaluation can be conducted either through questionnaires or via discussions, but using both of them together is always a preferrable method for conducting the Board Evaluation. c) Parameters for Evaluation- Another, important aspect of Board Evaluation is on what basis each category shall be evaluated. Although laws and regulations have given collective parameters but as per the practice and requirement of today it differs to each category being evaluated.

Apart from performance and functions following are the additional parameters for conducting Board Evaluation:

i. Board- Composition (including experience and competence of Directors), contribution in meetings, performance of duties, interpersonal interactions, strategy, information flow etc; ii. Chair- Leadership, steering Board meetings, Interpersonal communication, seeking views; iii. Directors- Independence, integrity and ethics, participation, contribution in meetings, knowledge, expertise, interpersonal relationship; iv. Committees- Composition, participation, independent judgments, information flow, duration and effectiveness of meetings.

Methods of Board Evaluation When the question is how to conduct Evaluation, Companies have a choice between having them internally or externally through a facilitator. Internal Board Evaluation process is conducted in house without any external facilitator, which might lack professional knowledge or expertise and might have some biasness depending upon Director’s comfort. Whereas, External Board Evaluation is conducted by External facilitator who should have practical Boardroom experience, the process is truly independent, and provides for expert perspectives. Internal Evaluation is cheap and takes lesser times, but External Evaluation is expensive and is time consuming.  Feedback and Action Plan Any activity conducted without feedback or monitoring becomes a futile activity. Hence, conducting evaluation is just not sufficient but giving feedback to concerned person and preparing an action plan basis evaluation, with the intention to monitor its implementation and reporting in the next evaluation completes the process. This will ensure that gaps are filled and continuous improvement is achieved, driving long-term organisation success.

Conclusion Directors are the guardians of stakeholder’s interest, and to perform there duties well, upgradation and skilling up become very important for them. Board Evaluation helps to achieve these gaps and is a crucial practice that helps the Boards to do better.

Further, it is not a one-time exercise and shall be done periodically. Board Evaluation helps to stay breast of changes in laws and regulations, which ensures compliance with legal standards, decreasing risks of legal issues and reputational damage. Hence, Board Evaluation is just not a box-ticking exercise but a strategic imperative for organizations aiming not just to strive but to thrive.

About the Author Excellence Enablers Private Limited, is a niche Corporate Governance advisory firm. We have a team of highly experience and renowned consultants, and faculty members who helps us to deliver on time. All our services are tailor-made to the specific needs of individual or organizations concerned and ensure implementation of better Corporate Governance practices. Our Services include Board effectiveness consultancy, Board Evaluation, customized training programmed for Directors and KMPs, improving Board processes, governance audit, succession planning, and Sustainability and ESG Advisory.

For more information visit our website at https://excellenceenablers.com/.