Western Independent Banker - November/December 2008 - (Page 11)

By Cass Bettinger A Practical Approach to Director Evaluations THROUGH THE END of the 20th century, only about a quarter of U.S. companies were conducting regular board a nd /or d i re c tor e v a lu at ion s . T he n came a series of high-profile corporate disasters, t he most prominent being Enron, and, all of a sudden, corporate governance became a critical success factor. Among the many sound recommendations of corporate governance experts is regular board and/or director evaluations, which are now required of all NYSE-listed companies. It’s hard to take issue with the logic behind these recommendations. After all, anyone whose behaviors and performance contribution has a significant impact on a company’s success should probably be involved in a regular, formalized evaluation process that will help identify specific opportunities to become more effective. Moreover, as more and more boards recognize that they, and the individual directors, are being held to an increasingly higher standard of performance, many are embracing board evaluations as the tool best suited to help them enhance measurably the effectiveness of the board as a whole. While most money center and many large regional banks have fully adopted a board and/or director evaluation process, most community banks are just beginning to consider seriously this corporate governance “best practice.” One apparent reason for the heightened interest is that many new bank directors serve, or have served, on other boards where board and/or director evaluations have been in place for some time. The three primary approaches to board evaluations are (1) evaluation of the full board by each individual director; (2) self and peer evaluations by each individual director; and (3) director interviews conducted by outside professionals. Many companies use all three. In the first approach, each director will respond to a series of statements, often organized in categories such as “Engagement in Strategic Planning,” using one of several accepted scales. In addition, one to three open-ended questions are often included, such as, “What is the single greatest opportunity to enhance the effectiveness of this board?” This type of evaluation is generally completed electronically, and a window for completion of seven to ten days is usually more than adequate. Each director will receive the evaluation results which will rank each statement by score. A special board meeting/retreat is typically scheduled to review the results and develop specific strategies to make the board more effective. An outside professional is often engaged to facilitate the session. Typical statements might include something such as: “The composition of our board brings together the proper balance of skill sets, experience, expertise, independence and community representation (diversity).” “In our board meetings and/or special board strategic planning retreats, we address openly all strategically relevant issues; there are no ‘sacred cows’ that are off limits to discussion.” In the second approach, which we call “Maximizing Director Effectiveness,” each board member completes a selfevaluation and evaluates each fellow director, using a series of statements, often organized in categories such as “Strategic Direction and Common Cause” or “Independence.” These evaluations typically use similar response choices and scoring as described above and generally include one to three openended questions as well. This type of evaluation is also completed electronically, but because significantly more work and time is required, a two- to three-week window for completing the evaluations is the norm. In some cases the evaluations are returned only to the individual directors. In most cases, however, copies also go to the chairman or lead director, who then schedules sessions with each director to review the results and to formulate “personal development plans” for addressing any developmental opportunities identified in the survey. It should probably be noted that in “What Directors Think 2007,” a survey conducted by The Corporate Board Member and PricewaterhouseCoopers, one of the findings was that “nearly one-quarter (23 percent) of directors say a member of their board should be replaced.” A well-designed and properly executed director evaluation process will The effectiveness of the board of directors, and of each individual director, has an increasingly significant impact on a company’s ability to adapt proactively and strategically to change and to achieve consistent and sustained success. Western Independent Banker November/December 2008 11

Table of Contents Feed for the Digital Edition of Western Independent Banker - November/December 2008

Western Independent Banker - November/December 2008 Contents A Message from the President & CEO A Practical Approach to Director Evaluations Director Assessment: New Standards for a High Performing Director The Best of the West: Traits of High Performing Banks Best Practices Checklist for the Audit Committee The Real Performance Metric: It Takes a Balance of Profitability and Growth to Be Successful The Role of the Board in a Credit Crisis A Bank Director's Obligation to Be Aware of Regulatory Change Benefits Tied to Performance Receive Higher Approval Rating by�Board Members Increasing Shareholder Value: Key Profitability Drivers Board Portals Streamline Efficiency for 21st Century WIB Service Corporation Report WIB Calendar Welcome New Members Index to Advertisers advertiser.com

Western Independent Banker - November/December 2008

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