Western Independent Banker - November/December 2008 - (Page 15)

By Geri Forehand, CPCM Director Assessment: New Standards for a High Performing Director IN TWO SITUATIONS banks are required to perform director assessments—the f irst if your bank is listed as a New York Stock Exchange company, and the second if the bank is operating under regulatory order. For the moment, let’s assume we are not an NYSE firm and we are not under a regulatory order. Should we evaluate the performance of the board? Let’s look at some key research. In 2007, Heidrick and Struggles and the Center for Effective Organizations at the University of Southern California’s Marshall School of Business surveyed 660 of the largest 2,000 publicly traded companies in the United States. 95 percent of the directors rate their boards as either effective or very effective overall. In the same survey, only 20 percent of the directors are seen as effective by the CEOs responding to the survey. Why the difference of opinion? In our experience in evaluating board performance, we have found different expectations. CEOs want directors who don’t get involved in the day-to-day running of the business, yet many board meetings delve deeply into minutiae and create an air of micromanagement. CEOs want directors who offer a strategic sounding board for management, yet board meetings do not spend quality time on strategic discussions. CEOs want all of their directors to bring their wisdom and experience to the company, yet many board meetings are dominated by a few individuals. What can be done to improve the perceived lack of effectiveness? We believe the solution begins with a board evaluation. Consider the goals of evaluating the board of directors. The bank wants to: • Improve the board so there will be better alignment with the strategic plan • Improve the ability of the board to serve and support the CEO • Improve the composition of the board A well thought-out and executed board evaluation process should prove beneficial to even the best-run boards, reinforcing roles and responsibilities and giving directors a regular opportunity to reassess their own resources and how they are allocated. A very small number of bank boards have mechanisms for explicitly evaluating how the board interacts with the CEO and the leadership team. Board members need feedback not only about how well they do their committee work, but also how much they genuinely help the CEO and leadership team advance the interests of the company. The purpose of evaluating the board is not to create a pass/fail “test” but to ensure that the overall board has skills and experience that align with the challenges facing the organization. When evaluating the understanding and performance of the board of directors you should: • Provide insight into the directors’ understanding of the strategic planning process as well as the desired levels of inclusion • Measure the board’s understanding of the organization’s goals and objectives and provide insight as to how directors feel about them • Measure the understanding of policies and procedures and the reasoning behind them • Provide insight into the directors’ understanding of the financial positioning of the bank • Identify the diversity of the directors’ expertise and opportunities for further development • Measure communication and information f low within the organization • Provide insight into the board’s external and bank-wide relationships • Provide insight into inter-board relationships and strengths There are three primary approaches to board evaluation: surveys, interviews and group evaluation. Surveys. The process must be statistically valid. Objective criteria are converted into objective behavioral measurements geared to illuminate the actual behavior of the board in critical areas. Interviews. Interviews of the board are often used to gain an understanding of the issues on the directors’ minds. Typically, an outside facilitator interviews directors individually using a structured questionnaire. Based on the results of the interviews a narrative report is presented that focuses on key areas for board improvement. Group evaluation. During a group evaluation, a trained facilitator engages the board and the CEO in interactive dis- A well thought-out and executed board evaluation process should prove beneficial to even the best-run boards, reinforcing roles and responsibilities and giving directors a regular opportunity to reassess their own resources and how they are allocated. Western Independent Banker November/December 2008 15

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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