Board Evaluation Pitfalls

The most obvious board evaluation pitfall is not getting one done – as is often the case with privately-held and family businesses. For large corporates and listed companies, there are generally more non-executive directors (NEDs) on their boards and they are more likely to have run an annual board evaluation process. However, according to the 2024 SpencerStuart report, only 44% of the top 50 listed companies on the Johannesburg Stock Exchange (JSE) conducted an external board evaluation, versus 55% in 2023. An annual evaluation of the board, committees, and individual directors is mandatory for listed companies under the King IV guidelines, but can be run as an internal process. (I’ll discuss why this approach is problematic in a moment.)

Interestingly, this is not dissimilar to an analysis from The Conference Board, Inc., which indicated that only 55% of S&P 500 firms disclosed a combination of full board, committee, and individual director evaluations in 2024, despite the fact that annual board evaluations are mandatory for all companies listed on the New York Stock Exchange. The loophole being that the method and disclosure of results are not specified.

Board evaluations are an essential part of the process of assessing the performance of a board, and form part of the eighth segment of the Sirdar Governance Compass – Evaluation and Improvement. Most worrying is that, according to the 2021 Sirdar directors’ survey, 42% of the private and family businesses across Africa that were surveyed had never conducted a board evaluation.

As a leadership team of any mid to large company around the world, it is common practice to run an annual or even bi-annual performance management process for our teams, but for some reason we do not believe that the same rules apply to ourselves as directors. Undoubtedly a controversial topic, but there does appear to be a culture that those at the top of an organisation are not held accountable and we see it in government and in business – not just in South Africa, but around the world.

No Action Taken

Not only are board evaluations done infrequently – or without independent oversight – but even when they are done, only a small proportion of companies take any action based on the findings.

Fewer than one in ten (7%) of board evaluations result in specific action plans to address opportunities, risks and weaknesses, according to findings from the Nasdaq 2023 Global Governance Pulse report, which shares insights from a global survey of more than 730 board members, executives and governance professionals across organisations and industries globally. This is despite more than 90% of boards surveyed conducting some form of evaluation.

What Directors are Saying

The good news is that directors themselves are driving improvements in evaluation processes according to the 2022/2023 GNDI Future of Board Governance Survey:

• Over 50% of directors feel that board evaluations are critical for improving board performance and this is one of their top priorities.
• 30% considered upgrading their board evaluation processes as a significant area for improvement over the next three to five years.
• 31% felt that a lack of formal and rigorous board performance evaluations will be less acceptable in three to five years.

The findings from this survey showed that alongside a skills matrix, conducting board evaluations on a regular basis is critical.

“Effective evaluations provide a pathway for boards, committees and individual directors to objectively assess their individual and collective strengths and weaknesses and implement plans for continuous improvement.” – GNDI Future of Board Governance Survey

Common Pitfalls to Avoid

The statistics tell us that evaluations need to be done more regularly, handled more independently and actioned more effectively overall, so let us get into the details of where evaluations go wrong.

1) Lack of Clear Purpose: The feedback that we hear most often when clients talk about the lack of value of their past experiences with board evaluations goes something like this, “My previous company used to run them and they just became a box-ticking exercise that added no value.” What it needs to be seen as is an effective tool for meaningful improvement, which starts with a shared understanding of why the board is being evaluated.

2) Inadequate Confidentiality: If the board members have a clear idea of why they need to be evaluated, then there is likely to be a better understanding of the importance of anonymity, since poor management of this can prevent directors from being honest. Breaches of trust may discourage full participation or spark boardroom conflict. 

3) Lack of External Facilitation (when needed): An external, independent assessment managed by a third-party provider helps to protect anonymity and provides directors with the space to open up and share the deeper issues. Self-assessment without an independent third party can produce a rather superficial report and also reinforce groupthink, because it is difficult to see our own blind spots, whereas to an independent facilitator they can be quite obvious. JSE-listed companies are in fact required to have an independent board evaluation done every three years according to the King IV code.

4) Poorly Designed Questionnaires: Questionnaires tend to be overly generic (especially if the process is seen merely as a ‘tick-box’ exercise), lengthy, or include irrelevant questions that dilute insight. Self-curated questionnaires often avoid the difficult questions, especially if there is a dominant chairperson. It is therefore important to ensure that the questions are relevant to the circumstances and type of business – templates copied from listed company practice may not suit private or family boards. An independent provider such as Sirdar can help with this.

5) Chairperson Bias or Dominance: I have had first-hand experience where the executive directors and NEDs agreed to have the board evaluation done by an independent company, but the chairperson squashed it and insisted on an internal process being run. This is not in the best interests of the company because if the chair controls the process or results, honest assessment becomes impossible. A weak or insecure chair may stifle critical feedback.

6) Failure to Include CEO or Executives (where relevant): Just as it is not good practice to let the chairperson dominate the evaluation process, not including the CEO’s feedback on board performance misses key insight on board-executive dynamics. In addition, the CEO is far less likely to buy into the suggested action items that come out of the process and may become disenchanted with the leadership of the board. While this is not common in private businesses, I have seen this happen on more than one occasion in NPOs.

7) Avoidance of Difficult Conversations: Soft-pedalling issues such as under-performing directors, poor meeting dynamics, or strategic paralysis can spell trouble. Boards may avoid holding each other accountable. A key responsibility of each individual director on the board is to ask the difficult questions and hold the organisation to a performance standard even higher than before, so it is critical that they hold themselves and each other accountable. 

8) Too Much Focus on Structure, Not on Behaviour: Evaluations often assess committee charters, attendance, or compliance, but skip leadership quality, trust, contribution, and dynamics. Rating of these elements is more subjective, but equally necessary. Sirdar’s preference is to include interviews with directors as a way of testing the accuracy of the feedback received and to open up a space for directors to provide feedback that was not possible in the questionnaires. 

9) One-Time Event; Not a Process: A board evaluation is not a “one and done” process. It needs to form part of a continuous learning cycle and be closely aligned with strategy, risk, or board development plans. Each repetition needs to build on what went before, constantly evolving as the business grows in size and complexity. Using an external service provider to manage this process can make a huge difference.

10) No Follow-Through on Outcomes: Even when evaluations are completed, there’s often no concrete action plan, feedback loop, or performance improvement process. “Nothing changes” syndrome leads to disengagement. Remember the stat that only 7% of board evaluations resulted in specific action plans? This is a huge waste of time and resources and comes back to point 1 above: Be clear on why the evaluation is being done and then what are you going to DO with the results.

Avoiding these common pitfalls will likely make the outcome more valuable, and when a process is seen to add value, it starts to drive a virtuous cycle of regular repetition and continuous improvement – the result is a much higher performing board and organisation.

In a Nutshell

Action needs to be taken:

• Clarify objectives up front (developmental vs compliance).
• Use a tailored and relevant toolset (not a generic template).
• Ensure honest participation (anonymity where needed).
• Appoint a neutral facilitator, especially where dynamics are sensitive.
• Close the loop: Present findings, develop an action plan, and track progress.

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