Companies are facing growing demands to evaluate the performance of their boards. The pressure comes from a variety of sources but, most obviously, it is the regulators who are setting the tone. In 2003, the Combined Code on corporate governance, revised in the wake of the Higgs Report, made board evaluation mandatory for UK companies and, the following year, the New York Stock Exchange introduced similar rules for US businesses. Elsewhere, there is a similar trend as investors, fund managers, insurers, capital markets and the media urge greater levels of evaluation and transparency.
The problem for boards is that there is minimal guidance on how to carry out an evaluation and no universal agreement as to when it should take place. The NYSE, for example, politely asks that companies “address” evaluation annually, while in the UK, the Combined Code leaves the door open to a variety of interpretations. It advises the board to “undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors”.
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