By ADEYEMI, Bisi
TUE, FEBRUARY 21 2017-A Board Evaluation exercise (also known as Board Appraisal or Board Review) is a holistic appraisal of the performance of individual Directors, Board Committees and the Board, with the objective of ascertaining effectiveness in the performance of individual Directors, Board Committees and the Board as a whole, and thereby identifying areas of improvement.
It is a useful tool in assessing the role of the Board and its Committees in formulating and directing the strategy of the Company. In evaluating the performance of its Board, a company will be meeting the expectations of its shareholders and other key stakeholders as well as the statutory requirements of the relevant Codes of Corporate Governance.
In light of the recent global financial crises, the evaluation of the effectiveness and performance of the Board and its Committees is considered consistent with good corporate governance practice and has now become the subject of regulatory compliance. The principal industry regulators now require companies to carry out Board Evaluation exercises:
- Article 5.7 of the NAICOM Code of Good Corporate Governance for the Insurance Industry in Nigeria provides for an annual Board performance appraisal to be carried out by an external consultant appointed by the shareholders.
- Article 5.4.5 of the CBN Code of Corporate Governance for provides for an annual Board review covering all aspects of the Board’s structure, responsibilities and relationships, as well as individual members’ competencies.
- Article 15 of the SEC Code of Corporate Governance provides that there should be an annual evaluation of the performance of the Board, its Committees, the Chairman and individual directors. The Code further provides that the cumulative result of the evaluation should be used as a guide in deciding the eligibility for re-election of Directors.
- Article 4.5 of the Code of Corporate Governance for Licensed Pension Operators provides that on an annual basis, the Board should undertake an evaluation of its own performance and that of its committees and individual directors. The outcome of such an evaluation should be submitted to PENCOM and used as a mechanism to improve the Board’s effectiveness.
A comprehensive appraisal of a typical Board will entail bench-marking the Board’s practices against the relevant Code(s) of Corporate Governance using key corporate governance considerations including Board Structure and Composition, Strategy and Planning, Board Operations and Effectiveness, Measuring and Monitoring Performance, Risk Management and Compliance, Corporate Citizenship, Transparency and Disclosure.
Regulatory compliance and the sanction for non-compliance should however not be primary reasons for carrying out a board evaluation exercise; rather it should be approached from the view that it is beneficial to the company and its stakeholders. The effectiveness of any Corporate Governance structure is ultimately dependent on the behaviour of the Board.
There is no gainsaying that an effective Board makes a crucial contribution to the success of the company and should not be exempt from robust appraisal. Therefore the evaluation exercise should be carried out not as a “box-ticking” exercise, but with the requisite diligence it deserves.
ADEYEMI, Bisi is the Managing Director DCSL Corporate Services Limited. Email:badeyemi@dcsl.com.ng|www.dcsl.com.ng
