Governance and Board Performance Problems

Few governance issues are as challenging as assessing board performance. The evaluation of board performance is more an art than science because there is a symbiotic link between firm, management and board performance. It’s also rarely clear cut. For example, a board could be managing the company well, but shareholders are unhappy with a low return on investment. The board could have acquired governance and management issues and is working to make the situation better. It could also have invested in new strategic initiatives and created a turnaround plan.

In other situations the board could become too involved in the details of operations and make decisions that should be left to management. These issues are made worse when the board is not employing the right method to evaluate its members. It is easy for small issues to escalate into serious issues, which could affect the effectiveness of the board.

The board could have cultivated an informal culture that doesn’t see its performance assessment obligations seriously. It could be because it doesn’t have the proper systems in place to gather performance data, or it’s not able to acquire the necessary skills required for a boardroom to effectively perform its evaluation responsibilities.

Boards shouldn’t just have the right skills, but also be open to the results of the assessment. The board should prioritise areas that need improvement and collaborate with the management team to formulate a plan of action. This could include regular training sessions for the board to increase knowledge across the board.

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