Board chair evaluation: does the UK know best?

Good governance in Canada typically means separating the chairman and CEO roles. But that’s really just a half measure without also having an airtight process to evaluate the chair’s leadership
By Beverly Behan

Canadian boards take pride in their long-standing practice of separating the roles of chairman and CEO. But British boards go even further—not only appointing independent non-executive chairs but also actively managing their performance. Like Canada, the UK takes a “comply or explain” approach to governance. But FTSE 350 companies are now required to appoint not only an independent board chair but a senior independent director, as well—or explain why they have not.

This may initially sound like governance overkill, but the reasoning is clear: the senior independent director is charged with conducting performance evaluations of the chair of the board. Section B.6.3 of the 2016 UK Corporate Governance Code specifies that the non-executive director, led by the senior independent directors, shall conduct a performance evaluation of the board chair “taking into account the views of the executive directors.” In other words, it specifies that both board members and management are to have input into the evaluation of the board chair. Moreover, Section A.4.2 includes a provision for the independent directors to meet in an executive session without the chairman or management present for the purpose of discussing the chair’s evaluation.

Wasn’t simply separating the chairman and CEO roles enough to ensure good governance? Clearly, it was not. Appointing an independent board chair is one thing; ensuring that the chair is and continues to be highly effective in providing board leadership is another issue altogether. The best chairs I work with are open to meaningful feedback and actually welcome it. They realize that true leadership requires them to set an example of accountability; if the board is going to hold the CEO and management team accountable for performance, they need to be accountable, themselves. Strong chairs have nothing to fear—and everything to gain—from this process.

On the other hand, entrenched chairs who recognize that they’re probably not terribly effective make every excuse in the book to avoid a meaningful performance evaluation that might threaten their position. This problem became so pervasive in Britain that as far back as 1999, UK governance thought leaders began floating the concept of a senior independent director—leading to the provisions now found in the 2016 UK Code.

Should Canadian boards follow the British lead—or develop their own approach when it comes to chair evaluation? Spencer Stuart’s 2016 Canadian Board Index of the 100 largest companies in Canada found that 67% have some formal evaluation process for their board chair. But there’s little information on who leads it or how it’s conducted.

Frankly, the UK’s double-barreled approach to board leadership can be clunky. But absent a robust and meaningful performance evaluation process for the board chair, it may become inevitable. The solution really resides with Canadian boards themselves—who can get out ahead of the regulators on this issue by choosing to implement a well-designed chair evaluation process. Three hallmarks will be necessary for any such process to be credible:
1) Someone other than the chair must lead the evaluation process— that could be the chair of the governance committee or a third party retained by the governance committee.
2) The process must be designed to generate meaningful and confidential feedback on the chair’s performance. This is seldom achieved in a group discussion and typically requires a series of open-ended questions where respondents can give constructive comments on a range of issues relating to the chair’s performance in a confidential forum.
3) Feedback from the evaluation should be delivered to the chair in a way that ensures the key results are effectively communicated, understood and actionable. This may involve a written report. Or it may involve a debriefing with one or more directors or a third party involved in feedback collection.

There are numerous ways that Canadian boards can design a robust chair evaluation that works well and suits their board culture. But one thing’s for sure: any board that has either avoided a chair evaluation altogether or has taken a de minimis approach thereto would do well to revisit this issue. And who knows? Some Canadian boards might want to appoint a senior independent director for this purpose, just as their British cousins have done.

Beverly Behan is a New York-based board consultant who has worked with more than 140 boards of directors in the U.S., Canada and internationally in the past 19 years. E-mail: beverly.behan@boardadvisor.net.

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