We are trying to promote good corporate governance – with, for example – a practice of evaluating the performance of the Board and its members with the help of an independent person. Why is it necessary at all? And why have an Independent? Won’t a Survey Monkey do?
Why do ‘Board Evaluation’?
It is now strongly recommended by SEBI and MCA as a good practice. Also, Companies Act, 2013, has made it mandatory for companies with paid up capital more than Rs 25 crore and for all listed companies. SEBI LODR also requires it.
Under any circumstances, why is this good governance practice necessary? Because Boards always strive to improve, to govern better – good boards do, anyway. And it is a way of signalling that you are, in fact, a ‘legally compliant’ board! Boards can look at how they conduct board meetings, the composition of the Board, topics discussed, and so on, a little more dispassionately in such a review. And directors can give feedback to each other, which, we have found, is taken very seriously by all directors, no matter how eminent they are. It can even be one effective way to signal to a director that he or she needs to either improve or even leave the Board.
Why should a Facilitator be involved?
Appointing an independent facilitator is beneficial for the following reasons –
1) A Facilitator modulates the tone of the Board members, sets the context, provides texture to the feedback and ensures the activity proceeds as planned.
2) Board members can rely on the Facilitator to convey honest feedback, such as if one of their members is not contributing enough, sleeps in meetings, comes unprepared, etc.
3) A Facilitator encourages transparency in dealing with the delicate yet critical issues related to report handling, which may otherwise pose challenges in communicating with Directors.
4) A Facilitator appointed to conduct the review is neither on the Board nor part of management and hence can handle above mentioned unavoidable situations far more comfortably and competently.
5) A Facilitator ensures that everyone has a chance to express his/her thoughts and that everyone is valued and respected.
On the contrary, the appointment of an insider for the review may adversely affect the evaluation under the following conditions –
1) An insider may leak sensitive information.
2) An insider may gossip about the type of evaluation and share the Board members’ reviews.
3) A piece of information let loose by the insider may result in disastrous consequences for the morale and amity on the Board.
4) Insiders who are privy to the review report could use it as leverage against members of the Board.
Who is a Facilitator?
A Facilitator is an individual with a sound knowledge of good governance practices and is mature enough to give feedback to directors individually as required. Most importantly, the external facilitator must be trusted to be truly independent, someone who cannot be influenced, even by the Chairman. All directors must be able to trust the facilitator completely, to be open and frank in their comments, knowing that confidentiality will be maintained at all costs. Thus, the better the Facilitator, the higher the success of the Board Evaluation.
Why should a Facilitator be an independent person?
A Facilitator must have enough stature and credibility, that he or she can be expected to do the job without fear or favour. The Facilitator should directly speak with each director, in addition to getting the survey filled out.
This is a White Paper from Axar Digital Services Pvt Ltd. BoardGauge, Axar’s Software solution for Self & Peer Evaluation by Boards, is a cost-effective tool to help boards recalibrate themselves, with assured confidentiality to feedback received from Directors. While we recommend retaining a Facilitator to conduct your board evaluation, we obviously respect your decision in the matter. So, BoardGauge is also available for use by companies without the involvement of a Facilitator.