The board works. The meetings run their course, the minutes are in order, and no one is complaining loudly. But is the board really working well enough?
It is not always easy to see from the inside. Patterns of collaboration that have been allowed to settle in, roles that were never clearly defined, competence gaps that emerged as the organisation changed. Weaknesses in board work are rarely obvious to those sitting in the middle of it. A board evaluation is the tool that gives the board the outside perspective it needs in order to improve. In this article we explain what a board evaluation involves, who recommends it, and what you actually get out of it.
What is a board evaluation?
A board evaluation is a systematic review of how the board functions: as a group, in individual roles and in its interplay with the managing director and owners. The aim is to uncover strengths and areas for improvement in the board’s work, so that the board can fulfil its responsibilities better.
The Norwegian Institute of Directors’ recommendations for value-creating board evaluation describes the purpose as follows: the evaluation should give the board a factual basis for improvement, not merely confirm that everything is as it should be.
The board’s self-evaluation versus external evaluation
A distinction is drawn between two forms of evaluation. Self-evaluation is where the board assesses itself, often through anonymous questionnaires or structured discussions in the boardroom. It is simple to carry out, but has an obvious weakness: it is difficult to see your own blind spots.
External evaluation is carried out by an independent third party and gives a far more honest picture. Board members speak more freely when their answers do not go directly to their colleagues. It has also become good practice for an owner-initiated evaluation to be kept entirely separate from the board’s self-evaluation, precisely to ensure that the gathering of facts is not influenced by who is going to read it.
What does a board evaluation map out?
A complete board evaluation typically looks at the board’s composition of competence and whether it meets the organisation’s needs, the understanding of roles and division of responsibility, the quality of the board meetings and decision-making processes, the interplay between the board and the managing director, and the board’s ability to carry out strategic work and risk management.
Who recommends board evaluation, and who does it apply to?
NUES and the Norwegian recommendation for corporate governance
The Norwegian Corporate Governance Board (NUES) recommends in its current recommendation that the board annually evaluates its work and its competence. NUES is the central Norwegian authority on corporate governance, and the recommendation is regarded as the Norwegian standard for good board practice.
The same applies to municipal and public organisations: KS recommendation no. 12 states that an annual evaluation of the board’s work should be a standing item in the board’s annual cycle.
Does it only apply to listed companies?
No. The NUES recommendation is aimed primarily at listed companies, but the principles are relevant for all organisations where the board has real responsibility for strategy and management. More and more non-listed companies, public organisations and associations are adopting board evaluation as part of good board practice.
An international survey reviewed by iStyrelsen showed that 64.5 per cent of professional boards actively use board evaluation as a means of improvement, up from 50 per cent the previous year. More than half carry out the evaluation without external assistance, which, according to BI Business Review, is one of the most common reasons why the evaluation does not lead to real improvement.
Why does external board evaluation give more than internal?
Question: The board already carries out a self-evaluation every year. What does an external evaluation give us that we cannot achieve ourselves?
Answer: An external evaluation gives three things the self-evaluation rarely manages. First, board members speak more freely to an independent third party than they do in the boardroom, where collegial considerations will always come into play. Second, an external party brings with it a frame of reference from other boards and organisations, and can identify patterns that are not obvious from the inside. Third, the report is a document that can be used actively in further development, not just an internal discussion with no subsequent accountability. Research cited in BI Business Review points out that evaluations not linked to concrete improvement measures rarely lead to real change.
When should the board carry out an evaluation?
Annually as standard practice
The simple recommendation is: once a year, as a standing item in the board’s annual cycle. Preferably in connection with the strategy process or the consideration of the annual accounts, so that findings and improvement measures can be linked directly to planning for the next period.
A board that only evaluates itself in times of crisis loses the opportunity to catch a gradual deterioration in the culture of collaboration, understanding of roles or coverage of competence before it has become a real problem.
At significant changes and critical moments
There is particularly good reason to carry out an evaluation ahead of a new board election, so that the nomination committee has a fact-based foundation for recruiting new board members. The same applies when changing the chief executive, during major strategic changes, or when the board notices that meeting quality or decision-making processes are not working as they should.
In connection with recruitment for leadership positions, we regularly see that organisations underestimate the need to evaluate the governance structure beforehand, which can give a new leader a poorer starting point than necessary.
How Habberstad Recruitment and Development carries out a board evaluation
Habberstad Recruitment and Development offers board evaluation as an independent third-party service. The process is structured in three phases: gathering facts through individual conversations with board members and the managing director, analysis of the findings against good board practice, and a written report with concrete recommendations.
We carry out evaluations across the public sector, municipal organisations and commercial companies. What they all have in common is that the board needs an honest view from the outside in order to develop, and that the recommendations must be concrete enough to actually be followed up.
Rune Frøyslie leads our work on board evaluation, with a background in leadership development, board work and organisational development.
A board that knows where it stands
A good board does not take for granted that it is working well. It checks. A board evaluation is not a sign that something is wrong. It is a sign that the board takes its responsibility seriously and wants to get better.
NUES recommends it. Good board practice requires it. And the boards that actually use the evaluation to improve are better equipped to lead the organisation through both good and demanding periods.
Get in touch for a no-obligation chat about how we can help your board.
