5Qs for Every Corporate Professional: CimplyFive’s Five Qs to Know if you have An Effective Board Evaluation System

Corporate Board Evaluation is a critical component of Good Corporate Governance, where the Board annually evaluates its effectiveness and identifies areas for enhancing its effectiveness. While it is mandated for listed companies and all public companies with paid-up share capital above Rs.25 crores, as a prudent measure it would be useful for all companies that desire to have a more effective and efficient board meeting process for realising all their stakeholders and shareholders aspirations.

  1. Is the context for Corporate Board Evaluation set bythe Chairperson & promoter of the company?

Board evaluations can be a valuable exercise in enhancing corporate effectiveness and efficiency and when the main actors -Chairperson & the Promoters set the context by highlighting the need for excellence in all corporate processes including the Board process. In the absence of such context setting, it is likely that the entire exercise can slip into a ritualistic, compliance-oriented activity designed to satisfy the needs of the regulators and auditors. 

  1. Is adequate time spent on identifying the criteria for the evaluation of the Board, its Chairperson, Sub committees, and Individual directors, both the independent directors and the Executive Directors?

A Board Evaluation is only as good as what it sets out to measure. While regulators provide guidelines, it tends to be generic and may require focused discussion to customise it for the company. Hence adequate time needs to be allocated for the board as whole to discuss and identify specific parameters which are evaluation for each of the categories, the board, sub-committees, chairperson and individual directors. 

  1. Do you engage an external consultant or facilitator for the Corporate Board Evaluation exercise?

Increasingly Board Evaluation is becoming a distinct segment with large number of companies across the world adopting it. Further, academic research publications in this space is also rapidly expanding. Given the disproportionate value that this focused activity can bring to the Board and the company, use of external consultant or facilitator for the first year or every few years is advisable for fruitful evaluations. 

  1. Do you used a digital tool that provides participants with anonymity for enabling a free and frank response to the Questions?

Despite verbal assurances on encouraging free and frank feedback, often the statute of the Chairperson or the promoter can be an inhibitor for participants to share their candid feedback. Hence the use of a digital tool that provides anonymity can be a significant value-add for receiving feedback on areas of suboptimal or new practices for improvement in board processes

  1. Does the board deliberate on the findings of the Corporate Board Evaluation to identify issues for improvement and chalk out action plan for redressing the issues?

A board evaluation is only as good as the improvements is brings to the board processes in the succeeding year. Hence, deliberating on board evaluation findings to define a timebound action plan is the ultimate test of Board Evaluation process. Even if all the four earlier processes are followed faithfully but the last step is compromised, the entire exercise would fall short of being a success. 

While policies are only communication documents, they reflect a lot more than the elements they cover, for they represent the culture of the organization, especially in matters regarding governance that have their foundation in ethics, where the motive is as important as action.

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