Leadership|October 24, 2022

Mirror, mirror on the board

A new Korn Ferry study shows more boards are doing independent evaluations. But fewer than a quarter of them are disclosing any changes made.

It’s no longer just routine surveys handed out among individual directors and committees. A growing number of boards appear to be taking stronger assessments of themselves and their directors. But revealing most of those findings is another question.

In a new study that takes a rare look at how boards are evaluating themselves, some 60% of more than 450 firms in the S&P 500 companies reveal they’re conducting periodic performance assessments, not just of their boards and committees but of individual directors. According to Anthony Goodman, leader of the North American Board Effectiveness practice at Korn Ferry and co-author of the study, that’s a big change from the past and comes as investors are pushing for more insight. “Boards definitely seem more open to these reviews than I can remember,” he says.

Even so, many are not on board yet with full transparency. Less than one-quarter of the firms that conduct board and director assessments disclose changes made as a result of the evaluations. And the companies that did discuss changes “tended to pick lower-hanging fruit to disclose,” the study says. According to Goodman, that’s a missed opportunity. “The results could reveal to stakeholders what’s happening and remove some of their questions,” he says.

The study, conducted by Korn Ferry in partnership with law firm Gibson, Dunn & Crutcher LLP, took an exhaustive look at proxy statements and found that 456 of the S&P’s 500 disclosed evaluation practices. From a compliance perspective, Nasdaq-listed companies aren’t required to conduct a board evaluation, and those listed on the New York Stock Exchange are only required to conduct an annual review of the board and its committees, not individual directors. That review could be as simple as a survey or group discussion.

But according to the study’s data, more companies are now using independent third-party advisors and adding interviews to the evaluation process. Nearly one-third of boards in the study say they use an outside firm to conduct board assessments, and 53% say they interview directors. These two tweaks result in “more objectivity and more insightful information,” says Joseph Griesedieck, a Korn Ferry vice chairman and managing director of the firm’s Board and CEO Services practice.

Goodman agrees: “Obviously, interviews create better insights, whereas surveys can just become an exercise in compliance.” Despite the increase in evaluations, he says he does believe more boards—particularly directors—would benefit from assessments. “In general, you find that directors are actually grateful for the feedback,” he says. “This is their chance to resolve issues.”