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Home arrow Economics arrow Boards of directors of state-owned enterprises : an overview of national practices.

Feedback into nomination process

As noted above, one of the key benefits of board evaluation processes is that they can help form a view on the overall functioning of the board, the desirable attributes that the board should possess and, in doing so, help identify any needs that could be addressed through future nominations. In order for this to occur requires both that the evaluation is directed to addressing these sorts of issues (that is, they go to the heart of board performance), and that there is a process by which the people or entities responsible for board nominations are provided with feedback on the outcomes of the evaluation process.

A non-trivial number of jurisdictions utilise board evaluations as an input into the nomination process, but the degree of formality of the process varies considerably. As a general rule, mandatory requirements for evaluation tend coincide with a more structured process for utilising evaluations as part of the nomination process. Some national examples are provided below.

Chile, with its quite structured reviews, reports that it uses the outcomes of these reviews specifically as an input into the nomination process, together with interviews with the chair and certain directors, an evaluation of the performance of the business and the fulfilment of its goals. In Sweden, board evaluation is addressed through the Corporate Governance Code which allows the results of board evaluations to be made available to the nominating body. In others the practices may not be formalised but are intended to inform the ownership entity on the future shape and membership of the board.

In Denmark, where formal self-evaluations are performed, they normally (in their entirety or as headlines) enter into the process of deciding on the optimal board composition and the identification of new board members, subject to discussions between the ownership Ministry and the Chair. Similarly, in Finland, board evaluations are not normally communicated to the ownership agency but “in the process preparing for the AGM the Chair discusses confidentially with the Director General of the OSD the performance of the Board as well as the additional skills needed, if any [...]. In this discussion, the Chair might find it helpful to take advantage of the results of the evaluation process.”

Good practice: Well structured board evaluations can act as a helpful tool informing the nomination process.

Notwithstanding the above examples, there are surprisingly few jurisdictions which formalise feedback loops (whether or not including actual communication of the outcomes of board evaluations) to the authorities responsible for the nomination process. Further, where results are made available, they tend to be used in an ad hoc fashion, rather than a systematic component of the nomination process. Many jurisdictions see the evaluation process as serving primarily for the improvement of the extant board and not necessarily as means to enhance the board composition.

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