Dear Board Doc: Getting to Effective Peer Evaluations
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Q: How common are peer evaluations among fund boards? We are considering the process of director-director assessments but are aware of the drawbacks and potential for discord. Can you suggest some strategies for conducting effective peer evaluations?
A: Individual evaluations of board members, unlike board level evaluations, are not required by the federal securities laws. However, several boards conduct board-level, committee-level and individual evaluations of directors and have found individual assessments helpful for a number of reasons. Individual assessments involve each individual director assessing his or her performance while peer evaluations involve directors assessing the performance of their fellow board members. Individual and peer evaluations can help boards identify and address emerging issues with individual directors that may not be identified in a board level evaluation. Additionally, consultants have found that simply being asked pointed questions on their abilities and performance can motivate directors to work harder. Emphasizing the goal of improved board effectiveness and the importance of each board member’s performance to the functioning of the entire board can increase directors’ buy-in and commitment. Whether or not to conduct peer evaluations must be carefully considered on a board by board basis, accounting for the personalities of the board members and the board’s working style. A board culture that prioritizes healthy debate, inclusive participation and collaboration can greatly benefit from candid peer evaluations.
In terms of process, boards can use either a questionnaire or interview for peer evaluations. Boards may choose a third party, such as a consultant or counsel, to conduct these interviews. The interviewer must be professional, discreet yet pointed in encouraging frankness from each director. The evaluation should focus on generating constructive comments that will have a positive impact on the board’s culture. Comments should be kept confidential, and shared with individual directors without attribution, to reduce the risk that any director will be alienated as a result of the process. Any records of the peer evaluations should be destroyed once the evaluations are complete. The board needs to make sure that the peer evaluations do not deteriorate and result in blaming a particular director for any board issues or give a forum to directors who have personality conflicts. Further, the board needs to be satisfied that its directors will honestly evaluate all board members, especially if they have concerns about one particular director’s commitment. Peer evaluations can succeed in a healthy and dynamic board culture.
Resources: PwC: Getting Real Value from Board Assessments. Available at: https://www.pwc.com/us/en/governance-insights-center/publications/assets/pwc-getting-real-value-from-board-assessments.pdf