Board self reviews
In many countries SOE boards are required to carry out self evaluations. The outcomes of the appraisal are generally communicated to the ownership entities, and in some cases also board nomination committees. The use of self reviews may co-exist with evaluations by the ownership function, but it is more common where no top-down reviews are in place. The degree to which the ownership function is involved in co-ordinating or participating in the review, and in receiving the results of the review varies quite markedly among jurisdictions. The board evaluation serves primarily the board itself particularly through the round up discussion, teaching the members to cooperate more efficiently and to perform better during the following fiscal year. Some examples of national practices are provided below.
A number of countries mandate an annual self-evaluation but leave the format of the evaluation up to the board. They perceive self-evaluations essentially as an internal board issue for the board - a collegial process focused on improving the workings and processes of the board. For example, in New Zealand the State requires each board to undertake periodic evaluation (at least annually) of the performance of individual directors, the chair and the board as a whole.
In Denmark self-evaluations are carried in different ways. In some boards, the Chair carries out a formal self-evaluation based on a standard questionnaire, while a more informal process is applied by other. For those boards that use questionnaires, the topics covered are typically the board's competencies (do the board think it is appropriately composed) and functioning as collective decision making entity (are they focusing on the right issues, is there an open debate at board meetings, do all members participate and are prepared), the Chair's performance, co-operation with management.
In other countries the ownership function provides general guidelines for the form that the self evaluations must take. For instance, in Brazil the Ministry of Planning has only recently introduced a process of systematic annual self-reviews to be conducted by SOE boards. The ministry has developed a detailed questionnaire and it is expected that the reviews will be based on this. The ministry will receive a copy of the outcomes of the review and may utilise this in assessing future board needs. At a minimum, the ministry will utilise the review to inform the annual process of fixing their remuneration, and will tie board member variable remuneration to the outcomes of the review.
In Slovenia, the ownership entity mandates that the self evaluation must be conducted according to a manual for self evaluation of boards, issued by Slovenian Directors' Association. The analysis is performed by evaluating a questionnaire is filled in by each member of the board. The analysis is discussed in special session of the board and action plan for improvement of boards' work is adopted in that session. The Chair of the Board is responsible for implementing the action plan. Boards can hire independent external professionals to assist them in the process of evaluation. In Latvia and Estonia, self-evaluation is a requirement of commercial law and forms part of the report presented annually to the shareholders meeting.
Good practice: Board evaluations should favour focus on performance of the board as an entity. They should not be limited to “box-ticking” exercises.