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A director's performance appraisal.

It is no longer presumptive to give boards and their members a performance evaluation. Here is a suggested test of 'boardworthiness.'

Exclusive standards and group anonymity have long masked individual directors' contribution to company performance. But with increasing public concern about corporate behavior, critics are asking, "Are directors boardworthy?"

Until recently, it would have been indelicate, at best presumptive, to suggest that boards and their members should be subject to performance appraisals. But expulsions from boardrooms, revelations of insider dealings, and other unacceptable practices, plus the increased frequency of restructuring followed by lags in certain corporations' performance, have raised the issue of inadequate director effectiveness and performance.

Some attempt to evaluate "boardworthiness" thus seems warranted. It emerges as a natural response to recent events and related issues that provoke several to-the-point questions: What is the role of a corporate director today? Why didn't the directors act? How much of board service is honorary? How much is substantive? Whom does the director represent first -- the public, management, employees, or shareholders? What behavioral norms or codes, if any, steer individual directors, in addition to those set forth in legal doctrines and regulations?

Criteria for membership on corporate boards traditionally have been elusive and purposely ambiguous. Boardworthiness is often assumed to accompany election of a director. And too few boards, board chairmen, and chief executive officers ever really tackle the question of their effectiveness. Considering the aroused public concern over corporate behavior, the tolerance of shareholders and fellow directors to cases of dereliction of duty and pedestrian oversight in the boardroom remains surprisingly high.

But changes in laws and government regulations plus mounting social, consumer, and employee pressures are dousing any lasting flicker of a directorship's honorary nature. We are witnessing an overdue rethinking of the philosophy. concept, structure, composition, role, and effectiveness of the board and the fitness of individual directors.

It isn't easy to objectively self-examine our own effectiveness as a director and to determine whether we have the needed talent, wisdom, experience, inspiration, imagination, independence, and risk attitude. How would you evaluate yourself? Try the following do-it-yourself checkup.

A Director's Boardworthiness Checkup

Under these examination guidelines, the rating of Honors signifies director service of distinction with overall high effectiveness. Pass implies that the director is satisfactory on essentially all counts. Fail means that the director is unacceptably deficient in contributions, performance, or effectiveness.

The do-it-yourself checkup is a suggested thought process. It is not meant to be constraining or overly quantitative. Judgment as to which attributes are essential in order for a director to be effective will vary. This depends on the philosophy, concept, and policies of the board; the value systems of individuals on the board; the nature of the corporate enterprise; and the environment in which the corporation operates.

No two enterprises or boards are alike and, therefore, I can see no way to standardize these categories. This framework is offered only to start you thinking about the importance of personal effectiveness in the boardroom.

Competence as a Director

Honors: * Fits in well and with distinction. Personally competent. Effective presence. Experienced. Influential. Respected. Outstanding peer relationships in profession, business, or community, and with other board members.

* Rounds out board strengths, abilities, experience, and subjective judgment.

* Good communicator.

* Ideologically oriented toward socioeconomic philosophy relevant to corporate welfare and conduct and supports them.

* Understands the difference between governing and managing a corporate enterprise.

* Is clear on the long-term economic mission of the enterprise and the delicate balance with social accountability.

Pass: * Meets most criteria above but may not be optimal when compared with talent available elsewhere.

Fail: * Talents largely duplicative of others, or less rounded out. While similar talents are often useful, director is substantially below level of competence and experience of others. Absence incurs no handicap to board functions. Realistically, must be discounted as having significant input to soundness of decisions or effectiveness of board. Does not fit needs of corporation.


Honors: * Thinks, speaks, and acts independently, with confidence and courage.

* Focuses on free-standing posture where independent decision is important.

* Avoids real or apparent conflicts of interest.

* Resists tendency of board toward a self-perpetuating protectorate unresponsive to change.

* Is a free thinker.

* Espouses a reasoned, independent directorate.

* Does not behave independently for sake of being an iconoclast or a revolutionary character. Is objective when considering trade-offs and consequences.

* Is always willing to risk rapport and collateral with chairman, board members, and chief executive officer in taking a reasoned, independent position.

* Understands and supports proper, albeit complex, relationships of the board members with the chairman, the CEO, and executive management.

* Would relinquish directorship rather than be considered captive.

Pass: * Respected for independent role.

* Not as prickly an independent as qualifications above.

* Speaks up on critical matters requiring objective opinion.

* Not captive of the chairman, chief executive officer, or other member of the board, although may be influenced at times by their dispositions toward matters.

* Potential conflict areas -- real or perceivable -- are openly explored, and an objective position is adopted.

Fail: * Is a captive to members of board or outside parties.

* Functions as surrogate for other interests.

* Is primarily dependent on political currents.

* Lacks will or courage to speak and act independently.

Preparedness as a Director

Honors: * Briefs self thoroughly. Shows sincere interest.

* Spends extra time with chairman and CEO on relevant issues.

* Knows key officers and some back-up managers.

* Visits facilities as appropriate.

* Exchanges views with others in corporate world.

* Respects confidentiality.

* Knows corporation's history, philosophy, style, and strategic plans.

* Keeps abreast of professional and international trends.

* Understands statutory and fiduciary roles.

* Stays current on legislative and regulatory matters.

* Is a continuing student of corporate enterprise, governance, and management.

* Exercises responsibility to shape policy and ensure continuing management.

* Keeps out of executive-administrative zone.

* Assists in corporate growth.

* Understands director and officer liability insurance protection and indemnification measures taken by the corporation for his or her personal protection.

Pass: * Is generally familiar with corporation's philosophy, opportunities, and problems. Needs limited self-education on the business and director function.

* Is reasonably current with company and industry problems.

* Understands power separation between directorate and executive management.

Fail: * Little knowledge of, but some interest in, general state of company and industry.

* Sporadic self-briefing.

* Doesn't try very hard beyond attending meetings.

* Contributes little thoughtful input.

* Gets more from association than offers -- in wisdom, reputation, advice, enthusiasm, and support.

Practice as a Director

Honors: * Thoroughly prepared.

* Does homework and understands reports and background materials.

* Communicates privately and constructively with chairman or chief executive between meetings.

* Avoids surprises.

* Asks probing questions focused on policy and strategy rather than tactics and details.

* Does not interrogate to show off knowledge.

* Director work is mostly talk and thinking.

* It is more symbol-intensive than labor-intensive.

* Insists on and gets information necessary for decisionmaking.

* Does not invade province of executive management.

* Conducts himself or herself so that corporation is satisfied with director's effectiveness.

* Fulfills statutory and fiduciary requirements.

* Keen ability to evaluate CEO, senior management, and company performance.

* Participates on committees when asked.

* Key resource to management and board.

* Introduces new thinking.

* Active in civic affairs and furthering education of directors.

Pass: * Generally prepared on issues.

* Fulfills statutory and fiduciary role.

* Reasonably able in evaluative role.

* Participates intelligently and constructively at meetings.

* Exhibits prior thought, interest, and consideration rather than performs for peers' benefit, or to show that he or she is an interested director worth the fees.

Fail: * Little evidence of study prior to meetings.

* Use meeting time to develop background by asking questions dealt with in briefing papers.

* Causes some frustration because of amateur performance.

* Allows leadership to fall to others.

* Misses meetings too frequently without legitimate excuse.

* Discussion, if any, is often negative and unhelpful.

* Really is not with it.

* Cannot truly be considered committed, responsible, or interested.

Committee Activity

Honors: * Serves usefully on at least one important committee.

* Has ideas and enthusiasm.

* Uses abilities and influence constructively.

* Does homework.

* Understands process of committee work, particularly relations with executive management.

Pass: * Nominally loyal to committee responsibilities.

* Attends meetings and carries out some duties with acceptable interest. Is definitely subordinate to the committee chairman.

* Does little work on his or her own.

* Relies on committee staff work.

* Fair attendance.

* Little effort exerted outside of meetings.

Fail: * Not particularly well-prepared and misses sessions frequently.

* Uses committee time to think about assignment.

* Brings no new thinking.

* Often opposed to consensus without credible rationale.

* Little sense of responsibility toward committee, even avoids assignments.

* Operates passively without participative actions except for attending some scheduled meetings.

Development Process of the Corporate Enterprise

Honors: * Owns (but does not trade in) responsible amount of corporate stock in relation to own resources.

* Makes penetrating suggestions on innovations, strategic directions, and planning.

* Knowledgeable about trends and externalities.

* Understands the impact of ownership on productivity in a closely held corporation.

* Recognizes share owners as the only voluntary constituency whose relation with the corporation often does not come up for periodic renewal. Consequently, sees that in the development process, governance mechanisms protect shareholder interests and enhances shareholder value.

* Questions officers in appropriate manner and at proper times on financial strategy.

* Helps win support of outside organizations, customers, suppliers, and investors.

* Relates corporation to new business opportunities ethically through direct and indirect participation.

* Positive force and independent thinker with interest in future directions and equity patterns of the corporation. Believes in conscious promotion of economic growth with social fairness.

Pass: * Holds nominal amount of company stock.

* Occasionally explores business issues with financial, commercial, or technical community on behalf of company when encouraged to do so.

* Average interest in conventional growth prospects.

* Not particularly identified as a strong supporter of forward innovative programs, but does not unduly resist them.

Fail: * Does not participate, even nominally, in furthering financial, commercial, or technical connections with the organization, profession, or industry.

* If required by law, holds token amount of shares, but purchase is not usually of own volition.

* Brings nothing substantive to deliberations of company growth vectors or dimensions.

* Has rear-view-mirror mentality.

* Resists change and does not keep up with future expectations and trends in the industry, business, or geographical theater of company activities.

Chairman of the Board

Honors: * Understands and believes in significant difference of roles of chairman (as agent of the board) and chief executive officer (appointed by and responsible to the board), whether both titles are held by one person or by separate persons.

* Prepares carefully for meetings.

* Gives thoughtful consideration to making meetings the most effective use of time of those assembled.

* Insists on reports being properly prepared in advance

* Distinguishes between material for information and material requiring board action.

* Keeps discussions on major strategic or policy matters.

* Insists on advance review of presentations where appropriate and when needed.

* Is competent in chairing and managing group dynamics.

* Thoughtful in agenda management.

* Considers what executive officers need to focus on at meetings and coaches them on director education and perceptions.

* Properly balances exposure of board to advocate and adversary views on major issues.

* Encourages constructive debate and independent viewpoints.

* Endeavors to make each meeting an interesting and rewarding experience for each participant.

* Effective leader with personal respect and established collateral with each member.

* Sees that candidates are developed for chairman and CEO succession, whether both titles are held by one or by separate persons.

* This involves education and testing process plus understanding of different qualifications for chairmanship and chief executive officer roles.

Pass: * Adequate moderator in sum (but not extensive interest or expertise in many considerations above).

* Passive interest in facing issues or improving director motivation.

* Not forceful leader.

* Constructive attitude, but reactive mode.

Fail: * As moderator, acts with little skill, enthusiasm, or insight.

* Delegates most governance issues to chief executive officer, if the chairman is a non-executive.

* Not strong advocate or does not understand (or believe in) explicit separation of roles (even when held by the same person) of chairman and chief executive officer for normal, stabilized corporate situations.

* Does little to enable smooth, timely chairman or CEO succession.

* Does not effectively encourage discussion.

* Is nervous with conflict at meetings.

* Wishy-washy attitude on critical issues.

* Does not encourage members to contribute to top management in strategy or policy formation.

* Does not exercise leadership in motivating directors.

Robert K. Mueller has focused for many years on the issue of corporate director performance and evaluation. He is the author of 15 books on management and corporate governance matters. He is the former Chairman of Arthur D. Little Inc., and currently serves as a Director of Arthur D. Little Ltd. (U.K.) as well as a number of other business enterprises.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:corporate director
Author:Mueller, Robert K.
Publication:Directors & Boards
Date:Mar 22, 1993
Previous Article:A board visit to China.
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