Boards need outside help

Shareholders should be putting more pressure on boards to be evaluated by external experts, according to a new report – as long as they can agree what it is they're supposed to be doing.

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Last Updated: 31 Aug 2010

The report, commissioned by search firm Hanson Green and written by London Business School professor Sir Andrew Likierman, looks at how boards can improve the effectiveness of the appraisal process that they’re forced to endure under the stock exchange’s Combined Code. The requirement was brought in following corporate governance scandals like Enron, and Likierman reckons some boards don’t really fancy it. ‘Some treat appraisal as a constraint, to be got over with as quickly as possible,’ he says.

Understandable – but not sensible, he suggests. ‘If you’ve have to undergo this exercise, it is worth trying to make it as useful as possible,’ he said at the report’s launch this week. ‘There is a tendency to feel that if the company is doing okay, then the board must be doing its job well. But is it doing the job as well as it could?’

Likierman thinks there’s been too much focus on process, and not enough on success measures. The first priority should be to work out exactly what the board’s objectives are, so you know what you’re measuring – a process that the chairman should lead. Then the key is to gather a mix of quantitative data (number of meetings etc) and qualitative feedback (‘I think the chairman hates the CEO’s guts’ etc).

When it comes to interpreting the results, you could use a trusted insider like the company secretary or a non-executive director – but your best bet is to bring in outsiders who can measure performance against best practice from other companies. ‘Companies should avoid circling the wagons – they should know what their peer group are doing,’ Likierman suggests. After all, it’s probably a bit much to expect the board to start sacking themselves for being useless.

It's a worthy attempt to tackle a genuine problem - it's undeniably true that even when companies have fantastic performance management throughout the organisation, they often fail to apply the same principles to the board. But as Likierman clearly demonstrates, this kind of thing is expensive, time-consuming and politically difficult to implement in practice.

Still, the professor can certainly claim to know what he’s talking about – as well as his management gig at LBS, he’s also a non-exec at Barclays and the Bank of England. Hopefully the very public ‘external appraisal’ of the Bank’s governor by the Treasury Select Committee on Tuesday hasn’t caused him to think again about the value of answering to outsiders...

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