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Board Evaluations

Changing the Boardroom for the Better

Ticking a box or making a difference? 

It is very clear that a new lens is being applied to board performance. The demands and expectations on board members are changing dramatically with a clear focus on how boards are making decisions and responding to issues such as technology disruption, climate change purpose and delivering a contribution to wider society. 

But are board performance evaluations keeping pace with these changes in focus? Can you think of examples where the evaluations have made a positive difference – where your board and your governance has been really challenged on whether it is fit for purpose to meet the future expectations of investors and wider society? If not, it is likely that you and your fellow board members see the exercise as nothing more than ticking a box. And this doesn’t benefit anyone – shareholders, stakeholders or yourselves as board members. 

Committee on Corporate Governance

On 2 December 2020, the Committee on Corporate Governance issued updated recommendations on corporate governance that are effective for financial years beginning on or after 1 January 2021. 

The previous version of the recommendations as well as the current version suggest that the Chairman of the Board conducts a board evaluation with external assistance at least every third year.

Information about the results of the board evaluation can be provided in the management commentary of the annual report or in a report on the company’s website that the management commentary refers to. However, this is not a requirement.

The Committee on Corporate Governance has particularly focused on the following: 

  • The purpose of the Company and its long-term value creation
  • Sustainability, tax and diversity policies
  • Evaluation of the Board of Directors and the Executive Board
  • Board composition and board committees 
  • Remuneration of the Executive Board

Danish Financial Statements Act Section 107b and NASDAQ Copenhagen’s Rules for Issuers of Shares require listed companies to state whether they comply with the recommendations and, if not, explain why they do not (the Comply or Explain approach). 

The information must be provided in the management commentary of the annual report or in a report on the company’s website that the management commentary refers to.

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A successful evaluation of the board of directors will identify the competencies, which the board of directors possesses and ought to possess in order for the company to develop. In light of this, the board of directors can identify requirements in respect of competencies, knowledge and diversity for prospective members of the board of directors.

Source: Danish Committee on Corporate Governance, December 2020

Deloitte recommends

Based on the updated recommendations on corporate governance, we recommend that the Chairman consider involving external assistance to evaluate the work of the Board, with focus on compliance and effectiveness of the board and board-level committees of listed companies to ensure that minimum requirements are complied with.

A Deloitte Board Effectiveness Review will be:

  • Tailored: We will not impose a rigid framework. We are well aware that every company and its board are different and will work with you to plan the review based on a strong understanding of your business, the current environment in which it is operating and the activities, which have been, and continue to be, a significant part of the board agenda. 
  • Resource effective: We acknowledge that boards, and those who support them, are very busy and that their time is valuable. We also believe that the board’s engagement with this process will decline the more hours and endless questions they are subjected to. With careful planning, this process can be resource effective, which has significant benefit for the quality of the outputs. 
  • Focused on outcomes: We want to apply a wide angle lens to your board so that we can help you understand the real outcomes of your activities and the impact on all key stakeholders. We believe that it is important that the review is not just considering what the board thinks of itself – other stakeholder views are important to really understand board impact. 
  • Honest: We won’t be afraid to ask the difficult questions and to give difficult feedback. If we feel that we are not getting appropriate responses or input, we will call that out. We will use our extensive experience of boardrooms and governance to provide honest opinions and feedback. 
  • About learning & development: Ultimately, this exercise is about making sure the board is working effectively as a team, focusing effort in the right places and agreeing what future priorities for development should be.

Curious to hear more about the Board Evaluations?

Read more here or contact me on the information below.

Martin Faarborg

Martin Faarborg

Partner

Martin Faarborg leads Deloitte’s Boardroom Advisory in Denmark. The advisory area includes leveraging thought leadership on governance issues into advisory on corporate and foundation governance issue... Mere