Peer evaluation: let's put some teeth into it: 'Earl, you can be annoying given your tendency to talk too much and blurt out your ideas in an undisciplined manner.' That director was stunned, but the feedback had the desired result.

• Author: Muschewske, Robert C.
• Position: DIRECTOR EVALUATION

HOW ROBUST is your peer evaluation process? Are members rated in terms of the standards of performance required to deal with the complex challenges facing boards in today's economic and regulatory environment? Does it rank directors from top to bottom based on their performance? Do members of your board view the process as credible?

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One board, dissatisfied with its board and peer evaluation process, decided to put some teeth into a new process--a process that would enable the nominating and governance committee to make tough decisions about who should remain on the board.

The first step in developing the new process was to identify the principal behavioral expectations for a board member at that company (see box). The second step was to ask each board member to rate every other board member on each of the behavioral expectations using a simple and straightforward scale as follows:

1. This board member is one of the best on the board.

2. This board member is on par with other members of the board.

3. This board member needs to improve.

Adding the ratings resulted in an overall ranking of board members and a ranking of each board member on each of the behavioral expectations.

Their ratings rationale

Once the rating process was completed, an external consultant conducted a confidential telephone interview with each director to understand the rationale supporting their peer ratings. In addition, the consultant solicited recommendations on which board members were best equipped to serve as chairs of the various committees of the board, whether or not the board should split the roles of chairman and chief executive officer and, if so, who would be best able to serve as the nonexecutive chairman. The consultant prepared a report for the nominating and governance committee containing the quantitative data as well as a narrative summary of qualities ascribed to each board member. In addition, the consultant prepared a letter to each member of the board summarizing their rating results as well as the narrative summary. Following is an example of feedback to one of the board members who was ranked sixth of the eleven members:

"Earl, your performance as a board member elicits both positive and negative comments. On the one hand, you are seen as smart, sophisticated and willing to express a point of view on key issues facing the board. On the other hand, you can be annoying given your tendency to talk too much and blurt out your...