Assessment: the key to good boards.

• Position: The Researchforum

As a rule, we find out how effective a board is when something really bad happens. So how do you know today if you have a good board? "You measure it: independently, confidentially and professionally," says Susan F. Shultz, CEO and founder of The Board Institute, a FERF Research Sponsor.

"At The Board Institute, we have developed the first suite of independent, Web-based, professional tools to help directors and officers assess, benchmark and enhance the effectiveness of their boards and committees," Shultz explains. The Audit Committee Index, which was developed in cooperation with FERF, is a keystone of this board-centric solution. "If there is no assessment and no accountability, how can shareholders know that the board, and the audit committee, are effectively representing them and doing their jobs?" she asks.

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Evidence increasingly proves that good boards mean good companies. "We know that investors will pay a 20 percent premium for a good board," says Shultz. Substantive board assessment is increasingly appreciated--and required--as an essential element of best practices. Assessments are now mandated by the New York Stock Exchange (NYSE) and the U.S. Securities and Exchange Commission (SEC), and assessments are rewarded by insurers when pricing directors and officers (D & O) insurance. "Directors need to be confident that not only the audit committee, but also the full board and the other committees, are effective. Board members now realize there is real accountability, and they need to proactively mitigate risk," Shultz explains.

Since accountability and transparency are important, assessment should be not only mandated, but expected. The market is evolving, moving beyond in-house and paper questionnaires and beyond cumbersome processes," comments Shultz. 'Directors and officers are seeking a more professional solution. The Audit Committee Index reduces the time and resources spent on the assessment process, and increases time spent on performance issues and productivity," she adds.

According to the Public Company Accounting Oversight Board (PCAOB), auditors must consider the effectiveness of audit committees as part of their assessment of the effectiveness of the company's internal control over financial reporting under Section 404 of The Sarbanes-Oxley Act. The Audit Committee index can be an independent validation for the committee.

The Audit Committee Index is an easy to use, secure...