What are the nomination committees of companies doing about evaluating performance of directors and recommending the capable ones? They need to do much more than just identifying and selecting potential candidates who are interested, well intentioned and generally aware of business trends. They need to consider if the veteran board members meet director competencies. Only progressive companies assess director competencies and upgrade selection criteria. The others would continue to use criteria which have nothing to do with competencies discussed herein, like, who doesn’t rock the boat, who doesn’t challenge the chairman, who agrees with the CEO always, who belongs to the old boys club,etc.
Some key competencies for Knowledge and Experience that should be considered in assessing a director as capable or skilled would include the following:
Risk Management Oversight
Audit and Compliance Oversight
Governance and Ethics
Understanding of the Regulatory Environment
Ability to use Modern Communication Technology
Tax and IT Governance Understanding
* The governance policies should define the expectations for each of these competencies so that the directors will have an understanding of the basis used for their evaluation.
“The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is asking the wrong question” -Peter Drucker. Therefore, a competency framework would have to cover behavioral and skills competencies as well. For example; critical thinking, consensus building, skepticism, problem solving, integrity, etc.
The nomination committees should be mandated to evaluate director performance prior to recommending them for reappointment. Their individual contributions and participation at meetings should be considered by the committee. Corporate governance policies should mandate continuous director development to advance competence and such activities should be recorded and also form part of the assessment for reappointment.
Good companies should try leveraging best practices pertaining to competencies and evaluation systems for the Boards to become more effective.