THE idea of self-assessment is one that is uncomfortable to many individuals. It is a daunting task because of the fear of discovering inadequacy or some other insufficiency during the process. More-so for those individuals in the public eye or those held in high regard in society, as they are more likely to suffer dire consequences if their deficiencies are revealed. However, the truth of the matter is that without effective and consistent self-assessment, it is difficult to identify areas for improvement. The old adage “if you are standing still while others are moving forward then you are actually moving backwards” rings true. For this very reason board evaluations must be carried out, whether the company is large or small. As the year draws to a close, this weeks’ article will discuss the importance of board evaluations in ensuring effective and efficient corporate governance.
Corporate governance is founded on the principles of accountability, transparency and corporate responsibility. Therefore, board evaluations are a critical element in governance because the responsibility for the performance as well as the sustainability of the company rests squarely on the directors. Directors have a difficulty balancing act to ensure the success of the company; for instance, they must achieve profitability of the entity as well as growth while ensuring stakeholder protection, sustainability, ethical corporate conduct, environmental responsibility, transparency and enhanced disclosure. For adequate assessment of the board and individual directors, there is a need for the scrutiny of the board, to guarantee that the different considerations are satisfactorily observed. Without doing a regular self-assessment, how can it be said that the directors as a team and as individuals are getting better and stronger, and steering the company in the right direction?
So what are board evaluations? Board evaluations refer to the exercise of examining the workings of a board and its members along with its effectiveness, the quality of its decisionmaking and strategy, and its relationship with the executive management. Board evaluations should be conducted by the chairperson of the board, or by external third parties. The goal of board evaluations is to identify gaps in the board or shortfalls of the individual directors, to enable appropriate training and development or removal of that board member where the inadequacies are beyond remedying. In today’s volatile business and corporate worlds, carrying out a board evaluation is not only a good idea, but is a practice recommended by Zimbabwe’s National Code of Corporate Governance (hereinafter reffered to as “ZimCode”).
ZimCode recommends the board to regularly assess its performance and effectiveness as a whole and the performance and effectiveness of board committees, individual directors and the chief executive officer. It is also advised the evaluation process to be undertaken annually by the chairperson of the board and externally, every three years. Beyond the evaluation of the board, ZimCode recommends that the performance and effectiveness of the company, its chairperson, heads of internal audit, company secretary, as well as service providers be annually monitored and appraised.
It is the chairpersons’ role to ensure board evaluations are carried out on individual directors and the CEO, with the help of the nominations committee, where there is one. The chairperson and/or nominations committee must also evaluate heads of internal audit, company secretary, as well as service providers. This does not mean that the chairperson is exempt from evaluation; in Zimbabwe, the chairperson must also be evaluated by a senior independent non-executive director or an external service provider. The approach should not be one of fault finding with public retribution, but one that seeks to improve the effectiveness of corporate governance in the entity. The idea being that a board without direction, without recognising its weaknesses, exploiting its strengths, or undergoing development, is bound to fail.
Clear objectives must be set before board evaluations are undertaken with clear outcomes and action points. Once concluded, remedial action, where possible, should be taken. The exercise should not be a tick box exercise but one that genuinely seeks to improve the company as a whole. Practically, the evaluation of the board and its members requires that data for their performance assessment and appraisal should come through questionnaires prepared by an outside service provider known for its competence, experience and skill or prepared by the chairperson and/or nominations committee. The data should be collected through self-review and peer review procedures, under the supervision of the company secretary. The analysis of the data and findings thereon should be done by a neutral service provider, or the chairperson and/or nominations committee. The process is one that should be fair and transparent and the results thereof must be disclosed in the company’s annual report, whatever the outcome.
The evaluation process should be used constructively, as a mechanism to improve board effectiveness, maximise strengths and tackle weaknesses. The results of the board evaluation should be shared with the board as a whole, and disclosed in annual reports, while the results of individual assessments should remain confidential between the chairperson and the non-executive director concerned.
The ever-arising corporate scandals in the country, highlight the increased necessity for improved accountability on the part of those charged with looking after shareholders’ interests, principally senior management and boards of directors.
- Implementing good corporate governance
- Board evaluations for effective governance in Zimbabwe
- Entrepreneurial corporate governance
- Beatrice Moyo is a lawyer registered to practise at the Supreme-Court of Zimbabwe and is also a registered conveyancer in the country.