We see it too often—corporate boards with members who simply don't carry their weight in the boardroom, leaving boards and their committees hamstrung.

Some of these directors have been serving on a board for many years, and they've become complacent or failed to keep up with the evolving world around them. On other boards, the direction, needs, and demands of the company have changed, and some directors have failed to change with it or lack the skills needed in the new environment. Whatever the reason, their skill sets no longer match the company's current circumstances, and they're incapable of dealing with the challenges inherent in the direction the company is now going.

It's easy to understand how this comes to be. Plenty of highly respected and accomplished directors with requisite skills, experience, and personal attributes who have done a fine job adding value for many years have lost their edge or gotten left behind. Over time, their experience and skills no longer match new markets, product lines, technologies, industries, or geographies in which their company operates. They might not have the technical skills required for new strategic directions or they simply aren't as vibrant or mentally sharp as they once were.

In many circumstances, these individuals still have great relationships with the other directors, and the group is cohesive and works well together. The directors know each others' thinking and positions on issues, leading to more efficient decision making. There's a comfort in having worked closely together for many years, going to “war” together, and sharing in the company's growth and prosperity. There's little appetite to single out such a long-standing contributor to even consider taking action against him or her, and removing the director from the board.

Refreshing the Board

Despite the reluctance of moving against any one director who is no longer contributing enough to the oversight of the company, or perhaps because of it, many boards have instituted processes for refreshment. One protocol makes eminent sense, basically a no-brainer: requiring a director whose circumstances have significantly changed to issue his or her resignation. When a corporate CEO, for example, brought onto a board because of his or her background and perspective in running a company, retires from the CEO position, he or she would also submit a resignation for board or nominating and governance committee consideration. Because a CEO retires doesn't mean the director no longer has the experience useful to the board, and the resignation might not be accepted, but there's a built-in process for enabling this individual to move off the board and another with skills better suited to the current environment to move onto it.

Because such changes in director circumstances occur relatively infrequently, many boards take an additional tack to refresh their ranks, using age or term limits. Upon reaching the age of, say, 70, or having served a specified number of terms, directors are required to submit their resignation. Although some boards might allow the resignation to be rejected, usually the rejection is accepted along with expressions of gratitude and a warm send-off.

Despite some benefits of age or term limits, I view this as the “lazy man's” approach to board refreshment. I've seen too many instances where board members doing an outstanding job and adding significant value have been moved off the board, and directors making an insufficient contribution have remained—and those companies were the worse, not better for it. Age or term limits take no real thought and are blunt objects used to deal with what are nuanced issues.  

Experience shows that the most effective protocol is to conduct individual director evaluations in a meaningful way, where board members provide accurate and insightful assessments of performance.

Another option is a director evaluation process. While the New York Stock Exchange listing standards require boards to “conduct a self-evaluation at least annually to determine whether it and its committees are functioning effectively,” there's no requirement to evaluate the performance of individual directors.

The majority of boards with which I've worked initially did not conduct evaluations of individual director's performance, or when they did, the evaluation process was superficial and served little purpose. When evaluations were done, they consisted of a questionnaire provided to each board member, asking about performance. The reality is that directors are not prepared to put anything negative about a fellow director's performance in writing. Such reluctance is entirely understandable, since, at best, it can cause disharmony in the boardroom, or, at worst, create unnecessary liability.

The Most Effective Path

If age or term limits aren't particularly effective, and individual evaluations haven't done the job, then what is the right path to take? Well, experience shows that the most effective protocol is to conduct individual director evaluations in a meaningful way, where board members provide accurate and insightful assessments of performance.

I'm now working with a company that is an industry market leader, where the board is all white, male, and gray haired. The directors acknowledge that the board needs refreshment and plans to add specific areas of expertise. It is also looking to diversify, not only to add perspective in boardroom discussions, but also because potential major customers make clear they consider board diversity in making contracting decisions. Its nominating committee now is considering a protocol for truly effective individual director evaluations.

What does an effective director evaluation process look like? It begins with a facilitated interview process where directors willingly express their views on the performance of individual directors.

Critical to this process is enlisting the right interviewer. The interviews could be conducted by the nominating and governance committee chair or lead director, but the reality is that directors often are not entirely forthcoming even with those board leaders. Rather, an experienced, skilled facilitator should shape the interview process and conduct the interviews. Each board member is interviewed in private, on a non-attribution basis—that is, where no information will be attributed to a specific interviewee. Information is captured and analyzed, and a summary prepared, with idiosyncratic words and phrases that might be recognized as originating from a particular individual excluded.

The resulting information is presented to and discussed with a board leader—the non-executive chairman, nominating and governance committee chair, or lead director—who has responsibility for considering what actions are needed to refresh the board. Importantly, this information is considered along with analyses of the board's needs for different knowledge bases—be they international, technology, cyber-risk, industry, market, post merger implementation, or others.

This combination of assessing director performance and required skills provides a roadmap for ensuring the board will be comprised of directors with the needed complement of skills, experiences, and attributes to deal effectively with issues the company currently is facing and those it will face going forward. The board leader then discusses the results with other leaders, and then presents to one or more individual directors as needed—either to outline areas where improved performance is needed or to suggest that it's time to move off the board. A high-level presentation usually is made to the full board as well.

It's only by obtaining truly accurate and relevant information about individual board performance that a board can move in the right direction. Certainly, it can be difficult for a board leader to suggest to a fellow director that the time has come to move along—but the challenge is eased with the supporting information and analysis provided by this process.

Interestingly, experience shows that in the majority of instances where individual directors have been advised that the time has come, those individuals intuitively know that change is needed. They recognize and accept that different directors will need to take seats at the table to best enable the board to effectively carry out its oversight responsibilities and to continue to add value in driving corporate success.

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