By Andrea Vittorio, Bloomberg BNA
How well corporate board members do their jobs is being measured more rigorously amid increased scrutiny from investors and each other.
Most of the Russell 3000 company boards that say they review their performance each year now look at members individually, rather than as a whole, according to data provided by Institutional Shareholder Services Inc. Companies are also increasingly looking to outsiders for a more objective board evaluation, instead of doing it themselves.
In 2016, only 12 of the companies ISS analyzed said they use an external evaluator. So far this year, it’s counted 61 companies that do.
“It’s still an outlier practice,” John Roe, head of data arm ISS Analytics, told Bloomberg BNA. “But that’s a huge jump.”
Board performance was looked at “very loosely” in the past, said Constantine Alexandrakis, a member of the board and CEO advisory group at executive search firm Russell Reynolds Associates. The firm conducts external board assessments, which typically ask questions about directors’ contributions, the board’s culture, and other areas.
“It’s gotten much more systematic,” he said, as investors scrutinize who sits on the board and what they bring to the table. Board members are also becoming more critical of each other as their workload grows and some worry their peers can’t keep up, according to a survey by consultant PwC.
Directors that PwC polled in 2016 are more likely to say today than four years ago that someone on their board should be replaced. The top reasons cited are that directors are unprepared for meetings, they lack expertise, or aging has affected their performance. But many board members are reluctant to give each other honest feedback.
Fear of Feedback
“I bet you anything nobody has said anything to that person” who ought to be replaced, a director at a Russell 3000 company who asked not to be named, told Bloomberg BNA. The director, who considers evaluations critical for helping boards see where they can improve, said “fear is what gets in the way.”
Board members might not want to criticize their peers for fear of causing discord in the boardroom, the director said. They might also be afraid of getting evaluated themselves.
“It can feel like a sensitive issue to be asking people to comment on each other’s performance,” Robyn Bew, director of strategic content development at the National Association of Corporate Directors, told Bloomberg BNA. Since most board members have management experience, she said “it really shouldn’t be that foreign of a concept.”
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