Undergoing an independent, external board evaluation enables an organisation to provide assurances to stakeholders, shareholders and potential investors that it is committed to the highest standards of governance and probity, as well as enhancing performance.
For institutions regulated by the Central Bank of Ireland, there is a requirement within the Corporate Governance Code for the boards of regulated entities to conduct annual assessments of their own performance and compliance with relevant provisions.
The Code imposes additional obligations on Major Institutions which are required to undertake a board evaluation, by an external evaluator, every three years. If the external evaluation is critical of the performance of the board, the Central Bank may increase the frequency of subsequent evaluations to take place annually.
For many Major Institutions, now is the time to begin preparing for an external board evaluation. Such an evaluation should aim to assess how the board is performing in relation to best practice standards to ensure that there is an appropriate system of direction and control in place.
The essential elements for such a system are:
- A governing body with the appropriate balance of skills, experience and personal qualities
- A good definition of the respective roles of the governing body and executive management
- A chairman of the governing body who leads the board and a chief executive who leads the management and the employees, operating as a professional partnership
- A high calibre executive management providing support and guidance to the governing body's decisions
- A system of delegation from the governing body and its officers, its committees and executive management
- A good system of checks and balances in place
The questions raised through an independent board performance evaluation will highlight strengths and weaknesses in these areas.
For any organisation, it is essential that its board is fully performing not only in its role of overseeing and directing the affairs of the organisation, but also ensuring that it meets the appropriate interests of its shareholders. The board of any organisation is its governing body and if it is not performing effectively and to its full potential then the organisation could be at risk.
Effective evaluation
Undergoing an external board evaluation ensures transparency and independence as an independent evaluator is unlikely to be constrained and will be open and objective when reporting findings and identifying issues that may need to be addressed.
The involvement of an independent external assessor also provides assurances to stakeholders that the evaluation was both rigorous and objective.
The board performance evaluation should concentrate on everything from assessing the board's performance in relation to business strategy, risk management, internal control and stakeholder management, to analysing the composition and practice of the board and even evaluating the performance of committees and individual directors.
The whole board should be involved in reviewing the outcomes of the evaluation, which should acknowledge the board's strengths and identify any weaknesses to be tackled. Identifying strengths and weaknesses is the first step to improving board performance and once a board knows where its strengths and weaknesses lie, only then can it begin to tackle them.
For more information on external evaluation for your board, contact the Institute of Directors in Ireland in complete confidence. The IoD's tailor-made board evaluation service offers independent and reliable results, generated entirely from the views and opinions of your board members. Designed to help your board to perform to its utmost potential, it is a highly effective way of investing in the future of your organisation.
Maura Quinn, Chief Executive, Institute of Directors in Ireland.
