Governance For What’s Next 4: Future-Proof Evaluation
No matter the size or structure of your organization, the case for board evaluation has never been stronger. In a turbulent environment, stakeholders and (activist) shareholders are demanding clarity on how boards are securing results. Box-ticking is no longer enough. And there is a move from one-off appraisals to an integrated, cyclical approach.
What are the basics of board evaluation, and what does excellence look like?
In this final article of our series: ‘Governance For What’s Next’, Amrop Partners and members of its Global Board Services Practice scan the current landscape of board evaluation and present a pragmatic model.
From Theranos to Volkswagen, to BP, WireCard and Enron, governance failures have been making the headlines for decades. “The larger your company becomes, the more your board can start to resemble an ocean-going tanker,” says Amrop Board Member Andrew Woodburn. “The progress is lumbering and once the momentum has set in, it becomes extremely difficult to alter — or stop — its course.”
Board evaluation isn’t just about regulatory compliance. An objective, data-backed review is a vital strategic hygiene. It equips boards to better support organizational growth and change and secure their own succession. It positions them to help their companies to meet the demands of stakeholders and investors. All while anticipating and managing risk.
Download the full article for more details and cases.
A major listed retailer with two families as majority stakeholders sought an external board evaluation. Beyond compliance with governance standards, insights were needed into the board members' performance and engagement. Moreover, frustrated by a 'consensus-oriented' board culture, senior managers desired a more challenging, forward-leaning dialogue.
Amrop quantitatively assessed the firm’s 4 governance pillars. It conducted structured interviews with the board and executive management team. The evaluation highlighted some competency gaps in the board and a lack of engagement from one member.
As a result, the Chair suggested transferring two NEDs to the Nomination Committee. Two hires ensued: a female digital board professional and the CEO of a large digital/consumer company. The board was now strengthened with strategically-aligned, value-adding competencies, and a cultural shift ignited.
Basic coverage
At their root, governance frameworks, including evaluations, keep companies within clear, regulated boundaries. Together with stock markets, they protect investors. "They know that the place that has their money has a set of railway tracks to stay inside of,” says Andrew Woodburn. But all is not well.
"Recently, companies have suffered multiple scandals; the falsification of data, harassment or accounting problems. Activist investors are taking advantage to push for strengthened governance," says Amrop Board Member Naohiro Furuta. And directors are exposed. "You know your risks and liabilities. You have insurance. But insurance doesn't always cover everything if you have made a mistake," says Gabriela Nguyen-Groza, a member of the Amrop Board Services Practice.
Like an annual independent financial audit, Board evaluations can “help ensure that you're doing the best possible job, reflects Andrew Woodburn. They may also demonstrate good faith in the case of a problem. “A company can fairly state that, whilst their directors can't know what every individual in a 10,000-employee business is doing, they have carried out their duties to the best of their ability, and this has been independently validated.”
Elin Wrammerfors is Co-Leader of Amrop’s Global Board Services Practice. She recommends NED candidates check a board’s evaluation process before joining. “They should do their own due diligence, making sure the board ensures proper functioning via thorough evaluations.”
The route to best practice
Long required of listed companies, board evaluations are today considered universal best practice. Done well, they support robust, responsible performance, identifying risk awareness and compliance with governance practices, regulations and industry standards.
A truly effective evaluation is a deep dive into a board’s strategic alignment, operations, composition and dynamics. But many boards are still snorkeling. In 2018, EY reviewed the latest proxy statements filed by Fortune 100 companies.1 Their findings suggest missed opportunities. For example, only 22% disclosed use of an independent 3rd party to facilitate the evaluation, at least periodically. 24% included individual director self-evaluation along with board and committee evaluation.
In 2024, PwC's Governance Insights Center found that 49% of directors wanted the replacement of someone on the board. And yet 88% trusted their board to address its own performance, even if 46% considered assessments too focused on box-checking.2
A well-conducted evaluation creates space for vital reflection, says Elin Wrammerfors. “Board members get time to ask themselves: are we focused on the right things? We spend a lot of time on questions such as: are we doing what we should? Are we working well as a team? Is enough time spent on strategy?”
Furthermore, a board evaluation should not be a one-off initiative, but part of a long-term cycle of continuous improvement. “Even in unregulated or smaller firms, a light but meaningful evaluation process is good governance,” says Kenneth V. Mortensen, a Founding Partner of Amrop in Denmark. “At minimum, it should include a structured annual self-assessment (ideally including feedback on the Chair), with a periodic external facilitation every 2–3 years (see the full article for details).
A strategic tool for renewal
A board evaluation “should result in clear action points, follow-up discussions, and transparency with key stakeholders,” Kenneth V Mortensen continues. “It should include an assessment of board composition and future skills needs. It should embrace a reflection on board dynamics, engagement levels, and strategic value-add. If resources are limited, focus on quality conversations, not checklists.”
Boards need to build 'social muscle', says Gabriela Nguyen-Groza, Managing Partner at Amrop Luxembourg. But this is made difficult by the lack of regular contact: "The board is a collection of individuals meeting four or six times a year. And it should actually be a community." An evaluation could be seen as the equivalent of going to the gym.
“There are two camps in board evaluation,” says Amrop's Board Services Co-Leader Adam Saunders, recalling that FTSE 350 companies must conduct an external exercise every three years. “These exist on a spectrum between policing, governance and compliance on one end, and performance improvement on the other.” The first pole adds little meaningful value. “They just throw the report in the desk or stick it in the annual report. There’s a clear distinction between evaluators who just take the word of the FRC code, versus those who get under the skin of the human interactions — the real value-add.”
"Skills and expertise are critical components of board composition," adds Naohiro Furuta. "But companies must differentiate on integrity — a characteristic that is even more important."
“The larger your company becomes, the more your board can start to resemble an ocean-going tanker. The progress is lumbering and once the momentum has set in, it becomes extremely difficult to alter — or stop — its course.”
Why the numbers aren't enough
To unleash its full potential, a board evaluation should be quantitative as well as qualitative. “Using both a questionnaire and interviews, you reach somewhere completely different," says Elin Wrammerfors. "This helps the board to identify blind spots. It can strengthen relationships, clarify roles and align the board on its strategic priorities,”
And board members rise to the challenge, Adam Saunders reports. “A psychologist joins our one-on-ones. When I'm conducting the evaluation, that person will intervene, suggesting: 'Probe more. That wasn't good. This could be better. Why did they say that?' And the clients love it. They see a huge value add.”
This depth is all the more important, as constructive criticism between board members doesn’t arise naturally, says Andrew Woodburn. “They don't get a lot of feedback on how to improve.” An anonymous consolidation of opinions makes it easier to communicate calmly and convincingly: “You can prove that three people say the same thing.”
Future-proof evaluation: The Amrop model
Amrop’s tailored process provides a clear, data-driven review of board performance, governance and alignment. In-depth interviews, shadowing, and Amrop's Board Evaluation Tool (BET©), deliver actionable insights for board effectiveness, strategic alignment, and governance practices. The evidence- and research-based framework objectively uncovers the dynamics in critical areas.
- Collective evaluation: An anonymized questionnaire is sent to board members, the executive management team and other stakeholders (optional). Amrop’s BET© tool covers up to 14 key performance areas in 4 governance domains: composition, operations and effectiveness, dynamics and communications, engagement and contributions. It can be completed in 30 minutes. Open fields allow additional participant input. Data is delivered in graphic form, with area rankings and cross-comparison of the perceptions of different stakeholder groups.
- Individual exploration: Anonymized one-on-one interviews are conducted with board members, with an option to shadow board meetings. These reveal the board's performance: as a body, its committees, and individual members. Focus areas are decided with the client. Recommended areas include: committee work, member strengths, weakness and participation, the leadership of the chair, board processes, the relationship with the management team, board culture, strategic consistency, and its fulfilment of responsibilities.
- Presentation and feedback: A written report and oral debriefing are presented to the relevant governance committee/s, the chair and whole board. The report includes conclusions on the board as a collective, individual board members and chair, optional individual feedback to each board member and workshops with the whole board.
Go to the full article to consult our model for a 3-year board evaluation cycle.
Board evaluation: 3 axes to go deeper
Amrop contributors
- Naohiro Furuta, Japan
- Kenneth V Mortensen, Denmark
- Gabriela Nguyen-Groza, Luxembourg
- Adam Saunders, UK
- Andrew Woodburn, South Africa
- Elin Wrammerfors, Sweden
Meet Amrop's full Board Services team here.
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Sources
1 Klemash, S., Doyle, R., Smith, J.C. (2018). ‘Effective Board Evaluation’. EY Center for Board Matters, Harvard Law School for Corporate Governance.
2 Uncertainty and transformation in the modern boardroom. PwC’s 2024 Annual Corporate Directors Survey. (2024). PwC Governance Insights Center.