April 10, 2025 What Is a Board Performance Review and Why It Matters
Overview
A board performance review evaluates the effectiveness of the board and its directors. They can help the board function more effectively, promote effective decision making and ensure discussions are focusing on the right subject matters.
This article explores the reasons for carrying out a board performance review and the benefits that can be gained.
Requirements under Corporate Governance Codes
Many corporate governance codes, including the UK Corporate Governance Code (the “UK Code”) and QCA Code recognise the value of regular board performance reviews and call for companies to conduct these annually. Under the UK Code, FTSE 350 companies are recommended to undertake an independent, externally-facilitated review at least once every three years.
In line with Principle L of the UK Code, the annual review of the board should “consider its performance, composition, diversity and how effectively members work together to achieve objectives” whilst “individual evaluation should demonstrate whether each director continues to contribute effectively.”
Benefits of undertaking a review
A review is much more than a compliance exercise it is an effective way to add value. A review identifies areas of positive performance and provides assurance in areas that are going well; areas of weakness and instigates conversations on improvements. They cause the board to take a step back and query all activities in light of the bigger picture and the constantly evolving external environment. Additionally, shareholders and stakeholders are often interested in the output, viewing board reviews as proof that the board is taking its responsibility seriously and looking to act in the best interests of the company.
Board performance reviews are important for organisations in all parts of their lifecycle. Growing organisations can take the opportunity to consider focus areas and the skills that will be required, whilst other organisations can use it as an opportunity to focus on risk and strategy, understanding whether the right papers are brought to the board and whether enough time is given to topics.
The board should understand the value that a review will bring, which will help to ensure that the process gets the right questions answered. The board must see the review as a positive, ultimately making the board more efficient and effective. Following the review, a report detailing the results will be produced.
Benefits of an externally-facilitated review
The UK Code recommends that FTSE 350 companies undertake an externally-facilitated board review at least once every three years. However, all companies can consider the benefits of more regular external reviews.
Using an internal reviewer can lead to bias as individuals may be less likely to give a true account of their feelings to someone they know. The internal reviewer can lack experience, giving the impression that the review is being done to ‘tick the box’. They will also have day-to-day responsibilities and are less able to dedicate time to ensuring a successful review in the way that an external specialist would be able to.
An external reviewer has:
- less bias due to an independent approach
- a fresh approach to the review and its design
- the ability to benchmark results against similar companies
Both internally and externally-facilitated reviews do come with a cost and ultimately for many companies, how frequently to conduct an externally-facilitated review comes down to a cost-benefit analysis.
What to expect from a review
A board performance review is a bespoke process dependent on the company’s requirements. An initial discussion with the Chair will help determine the focus, understanding what the Chair wants to achieve and the areas which require the most attention. This can then feed into the types of questions which are asked.
Areas often evaluated include:
- the tone set by the Chair
- the process used to ensure sufficient debate
- the identification, review and monitoring of risks
- the skills, knowledge and experience of the individual directors and the board.
The most effective performance reviews utilise both quantitative and qualitative techniques, including informal discussions and observation as well as benchmarking against the relevant governance codes. Observation techniques led by external evaluators can often give a more accurate result, rather than relying on individual opinions which may be impacted by bias. A mixture of open and closed questions is often common, allowing additional narrative to be given where required. Anonymous surveys are also frequently used, allowing individuals the freedom to evaluate themselves and others against skills that the company may require.
What happens after the review?
Ultimately the most important part of the review is the output and following the review it is important to ensure that the results are analysed and embedded in future processes, including director inductions. Recommendations given will be constructive and should be kept under regular review. Details such as how the evaluation was conducted, outcomes and influences that these have had on actions going forward, should be included in the annual report.
The review can act as an important learning point, for example helping to inform succession planning or to understand how the board feel the organisation has performed and managed different situations.
How can an expert help?
In an article for the Ivey Business Journal in 2005, Goffee and Jones quoted “If evaluating boards of directors was a product the “evaluation” would be just beyond the product launch stage.” Boards and senior management must understand how valuable the outputs of a board review can be.
Elemental can facilitate a board performance review for your company, whether as your appointed Company Secretary running an internal review process or as a completely independent, external facilitator.
If you require assistance with facilitating an independent board review or wish to chat more about the benefits, please do not hesitate to contact us. Visit here to learn more about our Corporate Governance Services.
