Best Practices in
Board Evaluation and
CEO Evaluation

What Is an Effective Board?
• When you think of a “high-
performing” or “world-class” Board:
– What is this Board particularly good at?
– If you walked into this boardroom, how
would it feel?
– How would you describes the
relationship between this Board and the
CEO?

High-Performing Boards……
• Are comprised of the right people
•
•
•
Portfolio of skills/experience
Engaged/make a meaningful contribution
Representative factors
Agendas
Information
Composition
• Get the right information
• Director orientation/education
• Pre-reading materials
• Board presentations
• Updates between board meetings
• Make the best use of their time
•Focus on the most important issues
•Balance of presentation/discussion time
•Engage at an oversight level, not management level

High-Performing Boards……
• Have effective processes, especially
with respect to:
•
•
•
•
•
Corporate strategy
CEO succession planning
Board evaluation/Director evaluation
CEO evaluation
Risk management
Board
Committees
Key Processes
• Have effective committees
•Board/committee interface is critical
•Committee membership and leadership
•Resources that support the committee’s work

High-Performing Boards……
• Have effective leadership
•
•
Draw out different perspectives
Keep meetings focused on critical issues
CEO Relationship
Dynamics
Leadership
• Work together well as a team
• Respect different perspectives
• Reach consensus/make decisions
• Have positive energy/engagement
• Work constructively with the CEO
•“Constructive tension” between support/critique of
management
• Raise tough, challenging issues
• Motivate and reward strong performance

Board-Building Model
Taking Stock of
the Board
Board Roles,
Expectations and
Level of
Engagement
Board Agendas &
Meetings
Board Structure
Create
Value-Added
Engagement
Assess Quality of
Engagement
Source: Building Better Boards, Jossey-Boss 2006
Board
Composition
Board Information
Board Processes
Board Leadership
Board
Climate/Dynamics

Board Evaluation

Board Evaluation:
A Best Practice Around theWorld
-1992: Cadbury Report (UK) first recommended
conducting an annual assessment of the board’s
performance as a “best practice” in governance
-Conducting an annual board assessment is one of the
guidelines in the modern UK Combined Code
-OECD Corporate Governance Guidelines noted that
regular evaluation of the board’s performance was one of
the board’s key responsibilities
-2003: New York Stock Exchange (NYSE) requires that
all listed companies conduct an annual assessment of
the performance of the board and its committees

A Best Practice in Canada - and a TSX Guideline
-In Canada, the Dey Report in 1994
recommended that boards conduct
an annual self-assessment of the
Board
-TSX Guidelines recommend Board
and individual director self-
assessment
-There is no prescribed format for
conducting the assessments
-Assessment results are not filed or
published anywhere

% Who Rated Their
Board & Director
Evaluations
Private Companies
(329 Directors)
Public Companies
(703 Directors)
Highly Effective 9.3% 15.6%
Effective 25.4% 42.1%
Somewhat Effective 36.9% 33.9%
Ineffective 28.4% 8.4%
According to the National Association of Corporate Directors
(
Most Board & Director Evaluations are
Ineffective

How to Avoid This Happening to YOU
• As Corporate Secretary, you need to be in a
position to inform your Chairman/ Chair of
Nom/Gov Committee of practices that avoid
the board evaluation becoming a waste of
board members’ time
• Use the right methodology
• Ask open-ended rather than closed-ended
questions:
– BAD: Our board has the right composition
– GOOD: If we were going to add one new board
member, what background/skill set should that
person bring?
• The outcome should be an “Action Plan” of
2-5 items that will enhance the board;
getting a “high score” isn’t the point

Choosing a Methodology/Design
What are your objectives for the board evaluation?
If it is primarily to achieve compliance with stock exchange
requirements or “best practices”, choose a survey
If you want to use the process to significantly enhance board
performance, invest in an interview process with an experienced
third party – and include management feedback.
If you want maximum impact but have a small budget or a large
board that make interviews cost prohibitive, consider a survey
supplemented by a focus group
There is no need to use the same process each year.
Innovative boards use different methodologies to see the board’s
performance through different lenses.

Surveys
On a scale of 1 - 5 indicate the extent to
which you agree with each statement:
1= strongly disagree 5 = strongly agree
• There are the right
people on the Board.
• Everyone pulls his/her
weight.
• Meetings are held with
enough frequency.
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5

Interviews
• Confidential, structured interviews typically conducted by a third party
but sometimes conducted by the Chairman, the Chair of the
Nominating/Governance Committee or the corporate secretary; this
methodology is used by 43% of UK boards
What was the most
significant decision
this board made in the
past year?
If you could change one
thing about this board,
what would you change
– and why?
What do you see
as the board’s most
important priorities
over the next 6, 12, 18
months?
How would you
describe the working
relationship between
the board and
the CEO?
What are
the major risks
facing this
company?

Focus Groups
-Subgroups of board members (4-5
directors) participate in focus groups to
discuss key elements in board effectiveness
-Most commonly used with large boards,
such as not-for-profits where cost of
individual interviews is prohibitive
-Can be a useful team-building exercise for
the board
-Board members are often more reluctant to
raise sensitive or difficult issues in a focus
group than in one-on-one interviews

Other Design Factors to Consider
-Feedback from senior executives who regularly
interface with the board
-Individual director evaluation
-Board observation
Some directors “play to the camera”
-Review of Board minutes
-Crown corporations (or similar bodies where a
stakeholder has the right to appoint directors)
Feedback from the appointing government body on their
perceptions of board performance

What do you do with the feedback?
1) Analyze It
 Analyze the key themes surfaced from the
board assessment to help you determine:
 Strengths of the Board
 Areas for Potential Improvement
2) Talk about it
 Schedule at least 2 hours (preferably half a
day) for the board to discuss the results of the
board assessment
 Discuss the top 2-5 areas for improvement and
develop strategies to effectively address these
3) Create an Action Plan (2-5 items)
– A roadmap for the board to use over the next 12
months to address possible improvements

“We Had No Issues”
-“We had no issues” in our board
evaluation is a big red flag. It implies
either that:
The Board evaluation is very poorly designed; or
The Board is “checked out” and doesn’t care
-Good Boards are made up of
accomplished business leaders who
value continuous improvement
These people always surface good issues and
try to make good Boards even better

Two Top Issues that Arise in Most
Board Evaluations:
CEO Succession Planning
Board Engagement in Strategy

1. CEO Succession Planning

Emergency CEO Succession Planning
-Every board should have an emergency succession
plan in place for the unexpected loss of:
Chief Executive Officer
Other top officers (eg. CFO, COO)
Loss of all three top officers at once (the
“company plane crash” or “scandal” scenario)
-Emergency succession plans should be reviewed:
On an annual basis with the full board
Whenever a material change in company or board
leadership occurs that could impact the plan

CEO Succession Planning Model
Corporate Strategy
Develop Future CEO Criteria
Assess Internal Candidates Against CEO
Role Profile
Select New CEO
Develop CEO
Transition Plan
Develop Plans
for Internal
Candidates
Assess Internal vs.
External Candidates
Corporate Culture
Business Model

2. Board Engagement in Strategy

Board Engagement in Strategy
SWOT
(Strengths,
Weaknesses,
Opportunities,
Threats)
Strategic
Alternatives
Strategic
Choice
Strategy
Implementation
Where most CEOs
Engage their Boards
On Strategy
Optimal Point to
Engage Board
On Strategy

Individual Director Performance and
Evaluation

The Best Directors Play Two Distinct Roles
 Watchdog Role
– Focus is on corporate
oversight
– Approval of management’s
decisions and actions
– Challenges management’s
assumptions
– Raises challenging and
sometimes difficult issues
 Sounding Board Role
– Focus is on “partnering”
with management to benefit
the corporation
– Provides advice, counsel,
guidance, and mentoring
to the CEO and senior
management
– Facilitates business
introductions
Source: Building Better Boards, Jossey-Boss
2006

Types of Problem Directors
-Pitbull
-Pet Rock
-Deer in the headlights
-CEO Wanna-Be
-Management lapdog
-“Wowed” by prestige
of being on this Board
-Super-director

Individual Director Evaluation: Methodologies
• Director Self-Assessment: Board members rate themsel•ves against a set
of criteria (eg/ “I ask good questions in board meetings”)
– This can be useful for consciousness-raising with a new board or as a
means of introducing this process
– It has limited utility, however. Inevitably some of the lowest performing
directors give themselves the highest scores.
• Chairman Phone Calls/Meetings: The Chairman calls up board members
and asks them if they feel anyone should not be re-nominated.
– This is not a true director evaluation process.
– No useful feedback is elicited on strengths and contributions of the high-
performing directors
– This tends to be solely decision-making and not developmental
– Feedback is provided “too late” and typically with insufficient detail to be
genuinely useful.

Individual Director Evaluation: Methodologies
• Conversation in the Nominating/Governance Committee
– “Once a year, our Governance Committee talks about the performance of
everyone on the board”
– This creates a two-tiered board dynamic and limits non-committee members
from providing feedback.
• Director Peer Evaluation is far more progressive and useful than other
methodologies. It is typically conducted using either:
– Surveys: Directors rate each other on a 1-5 point scale with write-in
comments
– Confidential Interviews: May be conducted by a third party or the Chairman:
– Key interview questions:
• What is Director X’s most significant contribution to the board?
• What, if anything, could Director X do to be even more effective as a Board
member?
• Should Director X be re-nominated to the board?

Individual Director Evaluation: Key Questions
-Will this process be used:
Solely for directors’ professional
development?
Part of the re-nomination process?
-Methodologies
Interviews
Surveys
-Who will deliver the feedback?
Non-Executive Chair?
Chair of Nom/Gov Committee
Third party?

• Keep it constructive
– Emphasize strengths and contributions so
that directors understand where they are
particularly effective;
– When raising shortcomings try to provide
specific examples and keep comments
constructive.
– Avoid personality-related comments that
only create bad feelings
• The skill of the interviewer is critical:
– Third party vs. Chairman/board
member??? Corporate secretary??
I
:
ndividual Director Evaluation:
The Key

Questions and Answers/Discussion