Assess the usefulness of a board performance review if it is carried out by the board members themselves.

Board Performance Review by Board Members Themselves

If the board performance evaluation is carried out by the board itself, there is a clear self-review threat to objectivity when looking at the evaluation as a whole. It may be possible to reduce this objectivity threat by careful selection of who reviews who, but however the process is structured, it does not change the fact that the board is reviewing itself, and this is unlikely to provide much assurance to outsiders. 

Having said this, a board of directors should have at least half its membership as independent non-executive directors. If these NEDs, together with the Chairman, carry out the majority of the review work, it can have some value and objectivity. For example, the Chairman can evaluate the CEO, and the Chairman of each board committee (probably an independent NED) can evaluate the committees. If the NEDs then evaluate the Executives, and also the Chairman, then potentially the evaluation is useful. 

However, many problems remain. If the Chairman evaluates the NEDs, but the NEDs evaluated the Chairman, then clearly this fails to appear objective, even if it was actually done objectively. So it is difficult to see who can evaluate the contribution of the NEDs. It can be argued that allowing a chairman to evaluate the board (or committee) that he chairs is itself a self-review exercise. In fact, putting the chairman in charge of the annual evaluation of the board that he chairs could be seen as a bad idea to start with. 

Whilst there are clear objectivity issues with the entire evaluation exercise, it is a fact that only those on the board and the committees truly know whether they are effective. They may lack objectivity, but they certainly understand whether things are working or not. The irony is that a good quality board will get a lot from a self-appraisal, because they will do it honestly and improve as a result. It is the bad quality board that will cover up its own weaknesses that is the problem – and it is these boards that are the least likely to choose to bring in someone external to add objectivity to the exercise.