Evaluation of the Board and of the individual directors is one potentially effective way to respond to the demand for greater board accountability and effectiveness of the company as well.

1. EVALUATION OF BOARD -
Process & Techniques
July 2014
HARIOM RASTOGI
B.COM (HONS), ACS, LLB

2. De jure, the shareholders are the owner of the company but de facto, it is the Board of
Directors who runs the company.
They are ultimately accountable for policies, practices, and procedures that will determine
whether the company will live or die.
In this regard, a formal Evaluation of the Board and of the individual directors is one potentially
effective way to respond to the demand for greater board accountability and effectiveness of
the company as well.
Like, a human being need a regular health check-up to ensure that he is not fit and fine
mentally and physically but also can survive and thrive in today’s environment. In same way,
the Board of Director’s (the Brain of the Company) requires check-up at regular interval to
identify strengths and weaknesses of its processes and procedures to run the Company.
To check your board’s vital signs, or to put in place practices and strategies for a healthy and
energized board, the best place to start is with a board self-assessment.
By undergoing a thorough board performance evaluation, one can provide assurance to
stakeholders and potential investors that your organisation is committed to the highest
standards of governance and probity.
The OECD (2009) recommends that “A board evaluation process, conducted with the support of
independent experts on a regular basis, should be used as a structural tool for monitoring board
effectiveness and efficiency.
A formal Evaluation of the Board and of the individual directors is one potentially effective way
to respond to the demand for greater board accountability and effectiveness. Feedback about
the performance of individual board members can help them enhance their skill as directors
and can motivate them to be better board members.
Board appraisal, if conducted properly; produce a number of positive outcomes. In addition to
the obvious benefit of greater board accountability, four areas of performance improvement
have been identified:
Overview
Evaluation of Board – Process & Techniques
All about Evaluation

3. 1. More effective board operations;
2. Better team dynamics and communication;
3. Greater clarity with regard to member roles and responsibilities;
4. Improved MD/CEO-board relations; and
5. An invaluable yardstick by which it can prioritize its activities for the future.
As a result of such a process, suggestions and concerns about Boardroom activities emerge
more often and more constructively from board members. Evaluations of group performance
usually encourage a more thorough examination of an individual’s and group’s responsibilities
and roles.
Good corporate governance makes good business sense, so if the company wants to increase
the effectiveness and efficiency of its board, it is essential to first assess how it is performing.
1. Board's self-evaluation: All board members participate. or
2. An internal evaluation team. or
3. A committee of the board. or
4. A non-board committee does the evaluation. or
5. By an outside consultant.
Why Evaluation
Evaluation of Board – Process & Techniques
Who should evaluate the Board of Directors?

4. 1. More accountability expected by:
 Members/stockholders;
 Government agencies; and
 Public in general is interested in business ethics.
2. Stricter enforcement of laws. (Companies Act and SEBI Laws).
3. More lawsuits against boards of directors. (Amway India Case, Shradha Group case).
4. Great consequences for mistakes made by the board. (Satyam Case).
Key Areas for Performance Evaluation
Why the Increased Interest in Board Evaluation?
Evaluation of Board – Process & Techniques

5. Under the Companies Act, 2013
Section 134 obliges the Companies to undertake a formal and rigorous annual evaluation of its
own performance and that of its committees and individual directors.
Further, Section 177 and Schedule IV of the Act cast a duty on the Audit Committee and
Independent Directors to take care of the interest of the shareholders by scrutinize the action
of Board of Directors.
Under the Listing agreement
Clause 49 of the said agreements provides as under:
Mechanism for evaluating Board members
The performance evaluation of directors could be done by a peer group comprising the
entire Board of Directors, excluding the director being evaluated; and the Peer Group
evaluation could be the mechanism to determine whether to extend/continue the terms of
appointment of non-executive directors.
The performance of the Board as a whole, of its committees, and of its members shall be
evaluated at least once a year keeping in view the objectives of the Company. They also can
have an outside consultant to conduct the evaluation annually.
Regulatory Requirement
How Often Should the Board be evaluated?
Evaluation of Board – Process & Techniques

6. Process may be varied as per the business operations of the company. However, following points may
be considered and incorporated the same:
 Commitment by all board members to the process.
 Set performance objectives or criteria.
 Plan the process and gather the information.
 Discussion.
 Follow-up.
 Identify areas for change and set goals.
 Confidentiality of result.
 Personal matter must be separated.
.
By framing up a questionnaire or by survey, an evaluation process can be initiated. Evaluation
can be categorized under many broad areas as per the need and feasibility of the company.
Some of the major are:
1. Board operations.
 Establishment of an organizational chart;
 Detailed job descriptions;
 Policies regarding board terms, elections, officers, meeting attendance, committee
structure;
 Orientations of new board members;
 Dissemination of accurate and timely information in length;
 Management responsive to request for clarification or amplification
 Sufficient board and committee meetings of appropriate length held to enable
proper consideration of issues
 Conducive and flexibility to deal with all eventualities;
 Annual board calendar; and
 Board manual or Board Charter.
Evaluation Process
What to Evaluate and Technique
Evaluation of Board – Process & Techniques

7. 2. Legal responsibilities:
 Mode of sharing the information;
 Having knowledge of articles, bylaws, policies and other laws;
 Periodical review of the byelaws, policies etc.; and
 Written policies on board ethics and conflict of interests.
3. Financial overview.
 financial policies reviewed and updated;
 Annual capex and budgets;
 Regular financial reports about the market and economy;
 Insurance policy of the Management and Company’s business;
 policies established for member equity/redemption; and
 Procedure for annual audit.
Beside this, model questions suggested in “review of the role and effectiveness of
non-executive directors” by Derek Higgs, January 2003 (Higgs Report)” are placed
below.
 Board performance against any objectives that have been set.
 Board’s contribution to the testing and development of strategy.
 Board’s contribution to ensuring robust and effective risk management.
 Are the matters specifically reserved for the Board the right ones?
 Quality and value of their contributions at board meetings.
 Relationships with fellow board members, the company secretary & senior
management.
 Appropriate composition of the Board and its committees, with the right mix of
knowledge and skills to maximize performance in the light of future strategy.
Evaluation of Board – Process & Techniques

8. In addition, there are some specific issues relating to the chairman who should be included as
part of an evaluation of the board’s performance e.g.:
 Is the Chairman demonstrating effective leadership of the board?
 Are the relationships and communications with shareholders well managed?
 Are relationships and communications within board constructive?
 Are the processes for setting the agenda working? Do they enable board members
to raise issues and concerns?
 Is the company secretary being used appropriately and to maximum value?
The success of any business ultimately depends upon the capacity of its directors to provide the
vision and direction needed not only to survive, but to develop and prosper. Therefore, make a
commitment to develop the capacity of the board of directors to improve both their personal
and collective contributions to the overall development of the business.
Being best governance practices, Board evaluation is to be considered as a tool that can assist
to improving the effectiveness of organization by developing and implementing a transparent
accountable process followed by frank discussion about the findings and recommendations.
Since, Board evaluation is not a personal performance review. A board assessment evaluates
the performance of the board as a whole.
I strongly encourage it and role of the Company Secretary is pivotal to it.
Conclusion
Evaluation of Board – Process & Techniques