This Year’s Model: influences on board and director evaluation

Over the last few years corporate governance codes and shareholder expectations have increased the need for boards of directors to demonstrate effective leadership, quality decision‐making processes and the ability to exercise corporate controls. Shareholders and stakeholders continue to focus on indicators such board structure, composition and non‐executive independence as proxies for effectiveness, often without an increased under‐standing of the environment in which boards of directors make decisions, or the behaviour and dynamics of individuals. In order specifically to address this issue the Combined Code, published in 2003, stated that a board should undertake annually “a formal and rigorous evaluation of its own performance, that of the committees and individual directors” (Financial Reporting Council, 2003, p. 10. The Combined Code on Corporate Governance. London: Financial Reporting Council), although it omitted to give formal guidance on evaluation methods, or the disclosure of outcomes to shareholders. This paper draws on earlier research (Long, 2004) in order to contribute to an improved understanding of the role and effectiveness of board evaluation, and to add to the policy debate by identifying board dynamics which influence the environment in which boards operate. It suggests that the evaluation process should interpret specific influences on the environment in which boards make their decisions – company lifecycle, corporate structure, board culture and embedded process – highlighting distinct board roles and responsibilities, and diverse levels of individual approach, expectation and contribution. The author draws on her work through Boardroom Review to explore ways in which board evaluation can achieve a range of corporate objectives which extend beyond compliance, and encourages boards and their chairmen to adopt a thoughtful and thorough approach to this year’s evaluation model.