Assessing board effectiveness

On this page

• Executive Summary: Assessing Board Effectiveness
• 1.0 Introduction
• 2.0 Background
• 3.0 Characteristics of Effective Boards of Directors
• 4.0 Essential Elements of a Board Assessment Process
• 5.0 Access to Individual Director Evaluations
• Annex A – Possible Assessment Approaches
• Annex B – Comparison of Possible Assessment Instruments
• Annex C – Available External Resources

Executive Summary: Assessing Board Effectiveness

Crown corporations are encouraged to ensure regular assessment of their boards and board members.

For a corporation to be successful and to ensure its board of directors has sufficient capacity/skills to provide necessary strategic guidance, boards of directors should be regularly evaluated. An effective board of directors ensures that the corporation meets all of its professional expectations, including maintaining its relationship with the responsible Minister and ensuring successful corporation management. Regular assessment of boards helps to ensure that the standards of the board are maintained and the corporation is capable of ensuring long-term viability and credibility.

Board members can be assessed on their knowledge base, ability, and commitment to fulfilling their responsibilities. This includes a solid understanding of their responsibilities under all relevant legislation, the expectations of the Government of Canada, and the environment in which the corporation functions. As well, board members can be assessed on the fulfillment of their responsibilities for the stewardship of the corporation and on whether they act in the best interests of the corporation and promote the highest standards of corporate governance.

Best practices suggests that a board assessment process should have four elements. First, the commitment of all individual directors to participate ensures there is a shared understanding and acceptance of the benefits of the evaluation. Secondly, a well thought-out systematic process ensures that there is a clear timeline and useful evaluation. Thirdly, specific, appropriately-chosen instruments ensure that the resulting information is valid, and the evaluation is efficient and accurate. Finally, follow-up after the assessment ensures that any identified areas of concern have been addressed and that evaluation information reaches the correct individuals.

The individual directors’ evaluations are considered personal information. As such, access to the evaluation reports of individual directors should be limited to the respective directors and those with a legitimate need to know.

The nature of the assessment process for board of directors varies widely and Crown corporations should choose the most appropriate methodology to suit their operations. A best practice is to have the Chair of the board choose the assessment process, with the support of the other board members. Utilizing a mixture of different assessment processes or varying them on a regular basis, is likely to provide a more detailed and accurate view of how well the board is functioning.

1.0 Introduction

All parent Crown corporations and any wholly-owned subsidiaries that have been directed to report as if they were parent Crown corporations are encouraged to engage in a regular assessment program of the corporation’s board and its members.

The purpose of this document is to provide an overview of the possible processes/methodologies for assessing the effectiveness of boards and individual directors of Crown corporations, as well as providing a list of possible instruments that could be used for this purpose.

2.0 Background

Assessment is a general term that embraces all methods used to judge the performance of an individual, group or organization. An assessment process may be undertaken by an organization for many reasons, including for developmental purposes or as a method for determining monetary compensation for individual employees.

A well-managed regular assessment^{Footnote 1} program of a Crown corporation board and its members is a good corporate governance practice, in that it enables identification of areas for improvement and can thus be used as a development tool. A regular assessment process ensures the board and its individual directors examine existing structures and processes, identifying successful practices to be retained and providing the opportunity for discussion about areas for ongoing improvement.

The Review of the Governance Framework for Canada’s Crown Corporations measure #12 outlines the aspiration that federal Crown corporations will establish and implement a regular process for assessing boards of directors and individual directors:

Measure # 12: Consistent with good governance practices, the government will ask boards of directors to establish regular assessments of their effectiveness and the contribution of individual directors as a self-development tool. The assessment of the board as a whole will be communicated by the Chair of the board to the appropriate Minister.

3.0 Characteristics of Effective Boards of Directors

Effective Crown corporation boards and member directors exhibit the following characteristics:

Board Composition:

• Comprised of individuals with the necessary knowledge, ability and commitment to fulfill their responsibilities.

Knowledgeable About:

• The corporation and its business, strategic plans and operations;
• General structures and processes of the Government of Canada;
• Responsibilities under law, in particular, the Financial Administration Act (FAA)^{Footnote 2} and the corporation’s constituent statute;
• Expectations of the government;
• Best practices in the organization and management of Boards;
• The Crown corporation’s Code of Conduct and the Conflict of Interest Act; and
• Issues that may affect the corporation, including its sector of operations, clientele, market, public environment, competitors.

Responsibilities Fulfilled:

• Comply with applicable legislation, Part X of the FAA, any regulations issued pursuant to Part X of the FAA, the Crown corporation’s charter, the by-laws and any directive given to the Crown corporation^{Footnote 3};
• Where applicable, comply with the Crown corporation’s enabling statute or any other specific statutes relevant to the corporation;
• Keep abreast of the Crown corporation’s public policy objectives and their impact on the corporation;
• Ensure independence from management is maintained;
• Ensure adequate training and education is sought out;
• Ensure the highest ethical standards of integrity and probity are upheld;
• Ensure a high level of personal integrity in all dealings with, and on behalf of, the corporation, including ongoing responsibility to disclose conflict of interest;
• Accountable to the responsible Minister for the stewardship of the corporation; and
• Support effective relationships with the responsible Minister and his/her portfolio department.

Conduct:

• Act honestly and in good faith with a view to the best interests of the Crown corporation;
• Exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances; and
• Promote the highest standards of corporate governance and seek compliance with the provisions of the Code (of conduct) whenever possible.

Instruments chosen to undertake an assessment of the effectiveness of boards and individual directors should capture to what extent the board and its members meet or exceed the above characteristics.

In addition, board assessment processes also offer the opportunity to gauge board satisfaction with the operation of the board (e.g., number of meetings, discussions, quality of equipment, attendance, interactions with senior management etc).

4.0 Essential Elements of a Board Assessment Process

Best practice for the effective assessment of boards and individual directors includes four important elements:

5.0 Access to Individual Director Evaluations

The individual directors’ evaluations are considered personal information. As such, access to the evaluation reports of individual directors should be limited to the respective directors and those with a legitimate need to know in accordance with the provisions of the Privacy Act.

Annex A – Possible Assessment Approaches

When planning an assessment process and selecting instruments for assessing the effectiveness of boards and individual directors there are a wide variety of possible approaches that a Crown corporation can consider:

Annex B – Comparison of Possible Assessment Instruments

Annex C – Available External Resources