Board evaluations and Sarbanes-Oxley and improved performance through coaching
It’s estimated that only 30% of the Fortune 100 conduct board evaluations. A board evaluation is exactly the kind of due diligence that Senator Sarbanes and Congressman Oxley had in mind when they affixed their names to one of the most important American legislation acts of this century. The downside comes when a seriously negative evaluation obligates the board to remove a member, since the evaluation process is essentially an audit.
We’re one of a few leadership consultancies that offer this specialized service and we’ve seen it have positive results by creating more effective board organizations. The process we use is similar to our executive coaching methodology.
Since Sarbanes-Oxley doesn’t require board evaluations, but does hold firms accountable for action if they do conduct evaluations, it’s a tough sell.
But what if boards took a developmental approach to evaluations like most Executive Development Group clients? Why shouldn’t directors have the opportunity to improve their effectiveness with data through work with an executive coach to be better in their interpersonal and collaborative skills?
Marjorie Chan, writing in the Journal of Leadership, Accountability & Ethics (Nov. 2009) surveyed 16 Fortune 500 and Fortune 100 firms…
“Neither the Sarbanes-Oxley Act nor the exchanges require the performance evaluation and removal of weak directors. It was reported that only 30% of the boards evaluate individual members (Hymowitz & Lublin, 2003). Participants were asked to express their views on this issue. All 17 interviewees agreed that board evaluations, either formal or informal, should be done. All participating organizations, except for two, conduct board evaluations on a regular basis. Three emphasized that the issue revolves around the decision with respect to what evaluation process to use rather than whether or not the boards are evaluated.”
In our experience, helping low-performing directors should be seen as a development opportunity and by developing the director toward improvement, the board demonstrates a high degree of commitment to the shareholders.