Minefields in the boardroom.

In discussing New York Stock Exchange rules requiring annual assessments of boards and committees, a prominent CEO said to me, "We've never done these on my board and I feel like I'm being force-marched into a minefield. I'm sure there's a wrong way and a right way to do them, but I don't even know where to begin."

He's not alone. Fewer than half of the Standard & Poor's 500 currently evaluate their boards annually, and many of those that do use superficial processes that produce little value.

But CEOs no longer have a choice. The NYSE rules are clear: All listed companies must perform an annual assessment of the board and the audit, compensation and nominating/corporate governance committees. And companies must publish guidelines describing the evaluation process.

These requirements will undoubtedly become de facto requirements for all major corporations as they become adopted as the yardsticks for measuring "good governance." So even if your company is not listed on the NYSE, it's only a matter of time before these rules apply to you, too.

Those companies frequently hitting the best boards lists--Texas Instruments, Pfizer, Medtronic--are rated highly in part for their assessment processes. But board assessment is a double-edged sword.

Poorly designed assessments raise two major risks. First, they can damage board dynamics by bringing exceptionally delicate issues to the surface. Without an effective process, these issues can easily be raised in ways that produce heated arguments and exacerbate rifts within the board or between the board and management. The second risk is an erosion of credibility. If sensitive issues are raised and then swept under the rug, directors will view the process as a sham.

Good boards, on the other hand, understand that effective assessment offers real benefits. The first is a check on the "pulse" of the board. CEOs can feel they have an excellent relationship with their board, only be taken completely by surprise when the board fires them. Good assessment raises red flags before problems turn into crises.

Assessment also provides a "safe" way to raise issues. It gives the CEO a chance to assess where the board is before deciding how to proceed. At the same time, it enables the board to talk about issues without the CEO leading the discussion, which often increases candor while preserving the CEO's political capital. The ultimate pay-off: more effective CEOs and boards.

In designing an assessment, CEOs need to address five key questions:

How will the data be collected? Will you be gathering quantitative or qualitative data or both? Surveys are useful in evaluating perceptions, but individual interviews tend to unearth richer data and underlying concerns. Canadian Imperial Bank of Commerce has used both qualitative and quantitative assessment processes. In the first year, interviews provided an excellent opportunity to focus on the issues of greatest concern. In the second year, the bank opted for a survey method to measure progress toward key goals. The board also has done intensive director peer assessment.

What topics will be explored? The central issue is reaching an understanding of how the various parties define the board's effectiveness. Those measures can range from structure and work processes to quantitative measures of financial performance.

How will you get the board to "buy in"? The key is to get agreement right from the start on the goals and criteria for assessment and the board's role in the process. How will confidentiality be assured? Who will collect the data? Who will see the results?

Who should conduct the assessment? Using internal staff is less expensive, but a third party might bring more expertise and be perceived as more objective. Some companies, such as General Electric, go so far to stipulate in their proxies that an outside board expert will conduct the assessment.

How will feedback be handled? This is probably the single most important component of the entire process. Deciding who will share the feedback with whom, in what settings, under what conditions and employing what steps to turn feedback into action-those are the choices that may ultimately determine whether the assessment is a success or failure.

David A. Nadler is New York-based chairman and CEO of Mercer Delta Consulting.