More than half (59%) of the respondents to the survey think the most positive impact of corporate governance reforms will be the requirement that the majority of board members be independent. This was followed by having an audit committee of independent Directors (40%), audit committee control of auditors (24%), board evaluations (23%) and tighter rules for independence (23%), according to a study conducted by Mercer Delta Consulting, in conjunction with The Center for Effective Organizations at the University of Southern California’s Marshall School of Business
Further backing up the contention that governance reforms will help, about half of the board members polled said that the new governance practices would be effective or very effective in: motivating Boards to perform well (51%), improving the power of boards (48%) and ensuring that boards have the information they need (46%). In fact 41% said new governance practices would be effective or very effective in improving the overall performance of boards.
In the environment of increased scrutiny, it is not surprising that 60% of board members said they were spending more time on board issues this year when compared to last. Among the areas that have received increased attention:
- accounting practices (85%)
- assessing corporate governance practices (83%)
- monitoring the company’s financial performance (51%)
- education and training for existing directors (28%)
- succession planning (23%)
With more work going into board practices, what comes as a surprise is that only 35% have spent more time evaluating the board’s performance and less than half (44%) of the boards sampled do not currently conduct any type of formal performance evaluation.
Among those who said they conduct an evaluation process, 64% said that their board evaluation process is effective. However, only 25% of the survey said that an action plan for addressing concerns is part of their Board evaluation process.
“Aside from being mandatory, Board assessment is one of the most powerful interventions available for turning a good Board into a great Board – one that is constructively and effectively engaged, that genuinely adds value for the CEO and the management team, and that provides strong corporate oversight,” said David Nadler, chairman, Mercer Delta Consulting . “But determining how the feedback will be handled is one of the most important components of the process. It is not enough to just raise sensitive issues; to be successful, it also has to be seen by Directors as a process that helps them resolve issues.”
Further, more than three quarters (74%) said that their boards do not regularly evaluate individual Directors. Among Boards that do undertake individual Director evaluations, approximately three quarters utilize evaluation methods that include peer- (78%) and self-assessment (73%) and 60% indicated that individual.
The findings of the study are based on responses from 249 board members of Fortune 1000 companies in the US, representing over 200 corporate boards.
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