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Evaluation of the Board of Directors

We must differentiate the operation of listed companies (with greater regulation) from unlisted and family businesses, which in Spain accounts for 80% of companies.

Evaluating the performance of the Board of Directors, is considered the main tool to advance in the continuous improvement of the management of the family business. This function of continuous improvement is carried out through the evaluation of the functions of the Governing body and of the evaluation of the people that form part of this body, whether they are family members or external professionals.

The evaluation of the Board of Directors is very helpful in differentiating the management of the company with respect to the management of the family, since it implies and demands a continuous advance in its professionalization. When this evaluation does not exist, the family does not visualize the confusion of its governing bodies, nor the defects of the functioning or the capacities of its members.

Advantages of evaluating the performance of the Board of Directors:

The company enters a process of continuous improvement and professionalization of business decisions.
It impacts the people, achieving that the board members are trained on the purpose of the Board and its functioning, actively participating in its improvement.
The leadership of the president is encouraged and content is given to his tasks.
Greater performance is achieved by external and independent board members, not falling into passiveness.
The possibility for family members on the Board to make more effort in the development and improvement of their qualities and abilities, through training programs if necessary.
Accountability is requested to shareholders and the family for improvement measures, helping to understand the whole process of professionalization of the governing body.

Obstacles in order to address the evaluation of the Board of Directors

In order to address the evaluation of the Board of Directors successfully, family businesses have to overcome several obstacles, among which we highlight:

Resistance by the members of the family to be questioned on their capacities and / or qualities, or in their professional performance.
Disinterest by the family in demanding themselves higher parameters of professionalism, comfort, self-satisfaction or indolence.
Disbelief or skepticism, when family members believe that they understand sufficiently the operation of the Board.
Fear of bad performance in the diagnosis.
Economic costs resulting from the professionalization.

On the other hand, the evaluation of the Board of Directors is a task that requires great prudence to avoid generating unnecessary conflicts and purposes that are clear and easily achievable.

The functional evaluation is the first step to start a process of continuous improvement of corporate governance. It focuses on assessing how the Board of Directors is working, that is, if it is fulfilling its role well and with the tasks commended to them, which must be aligned with fulfilling the purposes of the company, namely: the long-term or strategic direction of the company, development of the organization and control and guarantee of the veracity.

At Recarte & Fontenla, we help our clients diagnose what situation they are in and establish an improvement plan. To carry out this evaluation, it is necessary to resolve all the issues that may arise, such as:

Is the periodicity and duration of Board meetings adequate?
Is the information provided to the Board adequate? Does it arrive beforehand on a timely basis?
Is the list of issues to be dealt with in each Board appropriate?
Does the documentation provide adequate information on the development of the company and its investees?
Would it be desirable for some intervention from the company's directors in the Board meetings to deal with issues that directly affect their area / division?
Are the accountability reports and other reports from managers and advisors in the Board of Directors adequately planned? Is the timing well distributed?
Are the Commissions created adequate for the Board? What commissions should be put into function?
Does the Board act in accordance with the decisions taken?
What improvements should be implemented for a better functioning of the Board?
Are the debates constructive within the Board? Are the issues or alternatives for decisions well established for each debate?
Are the Board minutes properly written? Are the adopted agreements explicit? Are the orders and petitions for the next meetings well expressed?
Is there a clear leadership in the Board of Directors? Are the tasks and responsibilities of the board members well defined?
Is there a good work atmosphere in the Board of Directors?
Is the Board fulfilling its mission? Are their contributions to the company tangible? Do they maintain clear leadership over the managing director of the company?
Does the Board act on strategic issues for the future of the company? Do they have a clear leadership on the direction of the company? Is their labor a source of transformation, growth and / +or improvements in the company?
Does the board evaluate the organization and its directors? Are the key executives of the company properly selected? Are they concerned for their training and professional development? Do they guarantee the attraction of necessary talent and their retention?
Does the board exercise control over the management of the company? Do they monitor the risks that may threaten the smooth operation of the company? Are there systems in place to detect irregularities in the management? Are shareholders and stakeholders of the company well informed?

The evaluation of the functions of the Board of Directors is made easier when there exists a functional regulation for the Board of Directors. When this does not exist, the evaluation is a good opportunity to leave in writing the functions that the Board is expected to fulfill, as well as the rules for its functioning.

We consider it advisable to carry out an annual functional evaluation.