Silent Risks In The Boardroom: Why Board Self-Evaluations Matter More Than Ever

Forbes

17-07-2025

Silent Risks in the Boardroom
Most director resignations are a routine part of an ongoing board refreshment process that takes place at a relatively tempered pace. But some resignations are abrupt and noisy, as illustrated by a recent exit at Harley-Davidson.
That situation is a great example of governance issues escaping the boardroom into press headlines, impacting public trust and market value.
But do boardroom dynamics need to breakdown like this? No.
When boards treat self-evaluations as a strategic priority, they're better positioned to identify and address issues before they blow up the boardroom.
Board Evaluations Are More Than Just Compliance Exercises
Board evaluations are widely practiced. They are required of NYSE-listed companies and most Nasdaq-listed companies do them as well.
However, not all board evaluation processes are particularly meaningful. Many boards still treat them as compliance exercises rather than real opportunities to improve board processes.
As a result, they often miss the mark. According to PwC's 2024 Annual Corporate Directors Survey, 35% said their assessments were too much of a check-the-box exercise.
This passive approach means that board refreshment is more about age and tenure than driven by performance. In Agenda's Q1 2025 Directors' and Officers' Outlook Survey, most boards cited retirement age or term limits, not skills gaps or performance, as the reason for turnover.
Indeed, there is a clear reluctance in boardrooms to provide personalized feedback. Only 26% said skills gaps would influence refreshment, and a mere 3% cited performance as a driver for board refreshment. Spencer Stuart's 2024 Board Index, which focuses on S&P 500 boards, found similar results, reporting that only 47% include individual director assessments.
Making The Most Of The Evaluation Process
There is no one-size-fits all way to conduct board evaluations. The key to choosing the right type of evaluation is a high degree of self-awareness and honesty about what is likely to work best for the individual board members involved in the board evaluation process.
In the best case, a board's chairman or lead director will be able to assess what would work for a board in any given board evaluation cycle.
This might include asking fellow board members what they feel would be helpful . . . and paying attention not just to the words, but also the tone and body language when board members respond.
What follows are some questions that might guide a board's evaluation process. Note: using the same process every time tends to diminish the process's effectiveness. Consider making changes from time to time.
At What Level Should The Evaluation Take Place?
CII (the Council of Institutional Investors) recommends in its policies on corporate governance that boards conduct evaluations at the board, committee and individual director levels.
And while many boards do at least one of those, relatively few go all the way. According to ESGauge data reported by Agenda, just 52.4% of S&P 500 companies conducted evaluations across all three dimensions in 2024, up only slightly from 51.4% the year before.
There are, of course, good reasons some boards decline to conduct individual evaluations. Some boards fear that individual feedback could become political. Others argue that the board functions as a group and should be assessed as such.
Consider, too, that individual evaluations are inevitably both hugely time-consuming and intrusive. Bluntly, they are the colonoscopy of board evaluations—perhaps worth doing sometimes but surely not required every time.
Who Should Lead The Board Evaluation?
Who leads the evaluation process matters. Often, it's the general counsel, the chair of the nominating and governance committee or the board chair.
Some boards turn to third-party consultants or legal counsel, especially when tensions exist or feedback could become sensitive.
There are pros and cons to internal and external approaches.
Insiders often understand board culture and personalities better, which can lead to deeper insights. But that may also introduce blind spots.
When trust is low and board dynamics are strained, insiders tend to be less effective compared to an outside facilitator who can offer neutrality.
Some boards prefer that counsel conduct the evaluations in order to maintain attorney-client privilege. However, this only works if the purpose for involving counsel is to obtain legal advice.
How Transparent Should The Process Be?
In most cases, board evaluations are about ensuring that a well-functioning board remains that way. It's perfectly acceptable to state that things seem fine; we want to ensure that's true.
A good board evaluation benefits from everyone understanding that it's OK to mention relatively small things, e.g., 'I don't get enough airtime' or 'I feel that we call questions too quickly/not quickly enough.'
The spirit here is that tackling small things keeps them from becoming big issues later.
On the other hand, your board may be using the evaluation process as a way to retire board members whose skills are no longer relevant to the company.
In this case, it is best to be upfront about this. It's not easy to reach consensus that the board needs new skills and wants to implement a fair process to discern who is staying, but the outcomes will ultimately be better in the long run.
Consider, too, that when boards intentionally tie evaluation results to refreshment planning, they are better positioned to fill expertise gaps and align with company strategy.
What about people not in the boardroom like investors? Investors don't expect boards to disclose every detail of an evaluation, but they do want to know that an effective process is in place.
Board Evaluations Are A Risk Mitigation Tool
No one wants to serve on a board whose governance failures make headlines. One way to avoid this is to take corporate hygiene, especially board evaluations, seriously.
Effective board evaluations can lead to robust discussions that help surface friction and disagreements in a constructive way.
This is surely a better process than letting things fester, which only leads to turmoil that distracts management and ultimately may destroy shareholder value.