Evaluating individual directors.

• Author: Conger, Jay A.
• Position: Board of directors

Despite the existence of problems, there is a role for some form of individual appraisal as a component of the overall board evaluation process.

Boardroom performance appraisals have become increasingly commonplace. A recent survey by Korn/Ferry showed that 70% of the largest of American companies have now adopted a formal CEO evaluation, and some 25% employ a general board appraisal. On the other hand, surveys by Korn/Ferry and the American Society of Corporate Secretaries indicate that only 15% of large corporations assess their individual directors' performance.

In our research investigating board governance practices across American corporations, we have found that the most controversial issue in boardroom appraisals is whether individual directors should be evaluated. One group dearly favors it: institutional investors, who want boards to be more aggressive in weeding out underperforming directors. On the other hand, most individual directors are opposed to it.

In this article, we first explore why individual assessments remain so rare despite pressure from investors. We then discuss why we feel there should be a place for individual appraisals, if done properly, in every company's corporate governance practices. We also share how leading corporations have initiated appraisals; and the lessons they have learned about how this sensitive process can be made to work effectively.

The barriers

In our interviews with directors and CEOs of leading American companies, we found overwhelming opposition to individual board member evaluations because of several concerns. First, a number of directors and CEOs felt that collegiality among directors could be undermined if a performance spotlight is turned on individual members. They were further concerned that it might work against the idea of building a consensus and working together. The directors and CEOs that we interviewed also worried that director evaluations might drive away good board members who felt they have already"proven" themselves. After all, board members are selected because of their strong track records in general management or a specialty expertise.

At a time when there is heavy competition to attract top directors and when boards are demanding more from each member, many CEOs feel that it is risky to initiate requirements that make board membership less attractive. One CEO we interviewed reported that when he proposed a director evaluation plan to his board, he met with strong resistance. Board members told him it "wasn't worth it" to be on his board if they had to go through an evaluation. Once he heard their reaction, he abandoned his plan for board member evaluations.

A key concern about doing individual appraisals involves who should do the evaluation. Peers are possible evaluators, but they often lack the information needed to make an accurate assessment of other directors' performance. Boards spend relatively little time together and what occurs in meetings may not be the best gauge of a director's...