Using Board Evaluations to Enhance Board Performance: A Namibian Boardroom Perspective
In 2019, Deloitte Namibia carried out a corporate governance survey with participants from various company sectors such as private, public and state-owned enterprises. The survey was intended to assess the maturity of corporate governance in Namibia, including, amongst other areas, conducting Board evaluations, risk management and cyber security. In this article, we will unpack some of the survey results pertaining to Board evaluations of corporate entities in Namibia.
The increased interest from investors and stakeholders and the expectation that Boards become more engaged, knowledgeable and effective has resulted in increased usage of Board evaluations as a tool to measure and enhance the effectiveness of Boards.
The execution of Board evaluation exercises has become best practice pursuant to the development of contemporary corporate governance frameworks in the 2000s. Most commonly, Board evaluations are carried out on four dimensions as per the below image derived from the Committee of Sponsoring Organisations of the Treadway Commission, and their effective use can objectively elicit valuable and candid feedback, which in turn can provide a basis for the identification of training needs for directors and in motivating why re-appointment of directors may or may not be appropriate (NamCode principle C2-22.5).
The article speaks to the following points:
- The attributes of effective Boards
- What comprises a value-adding Board evaluation?
- How often is often enough when evaluating Boards and who should evaluate the Board?
- How should a Board evaluation report be used?
We have seen an increased spotlight on the performance of Boards both by shareholders as well as the general public and have noted that generally, Boards take their duties very seriously, so it is surprising that Board evaluations are not yet consistently used to enhance Board performance, as a feedback loop is clearly essential in ensuring continued strategic adjustment and relevance in an increasingly fast-paced and volatile environment.
While Board evaluations are relatively widely used, their effectiveness as a tool to drive increased performance is not yet fully ingrained in the market. Increased insistence by Boards and management on annual evaluations can help improve this situation, for as long as Boards ensure that appropriate, clear remediations are put in place subsequently to receiving a Board effectiveness report. Often, these actions are already documented in the Board effectiveness report, but are side-lined throughout the year until just before the next Board evaluation. Assigning action owners responsible for enforcing implementation may drastically increase the value derived from Board evaluations.