Evaluations Create More Effective Boards

Reprinted with permission of the author, Tim Harrington, a certified public accountant and president of team resources, Tucson, AZ, a training and consulting firm. For the past three years, he has served as a board member of $155 million assets Tucson (AZ) Old Pueblo Credit Union

Some years ago a board member said to me, “I’ve been on the board for 21 years. That doesn’t mean I have 21 years of experience. It means I have a one-year experience 21 times.”

Helping employees develop so they can undertake greater responsibility is vital to any organization. Unfortunately, many cooperatives don’t have this same philosophy for their board of directors.

A common and useful way of helping employees improve is through an effective evaluation process. You can apply this same methodology to your board.

Volunteer Boards: A Bunch of Amateurs?
The quality of your cooperative is a reflection of the quality of your board of directors. If the board does its job well, then the organization likely will prosper. But unlike directors in for - profit companies, coop directors are, in the truest sense of the word, “a bunch of amateurs

I use this term as a compliment, not an insult. Here’s why: The word amateur comes from the French root “amour,’ which means, “to love.” Amateurs are those who get involved out of love for their endeavor, not out of pursuit of personal gain. Co-op members become board members simply because they believe volunteering is an important way to contribute to their community.

Being “a bunch of amateurs” also is one of the keys to the Co-op Movement's success and a factor that differentiates them from investor - owned corporations.

Boards theoretically base decisions solely on what’s best for co-op and its members, not on what’s best for the board or for its individual board members.

Unfortunately, this theory assumes that board members understand what’s best for the membership. It also assumes board members stay up-to-date on the issues and products relevant to the industry. While this may be true for many boards amid directors, it certainly isn’t true for all.

That’s why it’s important for board members to do everything possible to strengthen their weaknesses. As the leaders at the top of the organizational chart, they are the ones who ultimately are responsible for how the co-op operates.

Directors also take on a significant liability as volunteers. They’re responsible for millions of dollars of someone else’s money. The recent scandals at Enron Global Crossing, and WorldCom probably could have been avoided if the board had remembered whose money they were caring for and to whom they ultimately were responsible: their shareholders.

With effective oversight, boards are a key internal control in ensuring that management operates in an ethical and effective fashion. Without effective oversight, boards relinquish their duty and take on unnecessary liability.

A key to helping a board “be all that it can be” is a strong peer-to-peer evaluation and self-assessment process. Many options are available.

Although I use the word, “evaluation,” it’s important that the focus of this process is on board development, not board evaluation. Focusing strictly on the evaluation aspect may discourage board members. They may believe they don’t need it or are, in fact, above it.

A McKinsey & Co., Inc. study on for-profit board governance concluded, “At this point in their careers, directors don’t want to be evaluated.” This is chiefly because directors of for-profit boards often represent large corporations. They're re often CEO's of their own companies or are professional board members.

Co-ops may run into similar attitudes if their board consists primarily of retirees who haven’t faced a job evaluation recently, for example, directors who have held a seat for a long time. Yet, an evaluation process helps a board identify weaknesses impairing its effectiveness.

The most effective and progressive directors won’t mind this process one hit. They’re usually the ones who look forward to it so they can discover ways to improve. Nonetheless, focusing on board development hardly can be argued with and, therefore, should make it easier to convince hesitant directors.

The overriding purpose of the board development/evaluation process is to identify areas of board operation needing attention or improvement; Build trust, respect, and communication among board members and with the CEO; Enable individual directors identify personal weaknesses relating to board duties and develop plans for improvement; and allow the board to be as effective as possible for the benefit of members and other stakeholders, such as the management team, employees, select employee groups, and other communities.

Consider Board & Individual Evaluations
Organizations have different approaches to the process of board development. Here’s a look at the philosophy behind each method.

Assessing the Board’s Contribution
The board and/or management should take this approach if it’s believed the board could make a better contribution to carry out the co¬op’s strategic vision. These boards believe the purpose of the evaluation process is to increase the effectiveness of the board as a whole, not to target individual board members.

Assessing Directors Individually
This philosophy holds that if each member is contributing fully, then the board should function well as a whole. With this methodology, the board can work with individual members to identify areas where they personally need to improve, and then establish an individual improvement plan.

The Combination Method
To assess both directors and the board as a whole, you can use a combination of an individual evaluation and a board evaluation. This seems to be the most commonly used method among credit union boards, and it also appears to provide the best results overall.

Some evaluation processes require board members to evaluate themselves and each of their fellow board members. Another method is to have your co-op’s governance committee evaluate the board and individual directors.

360-degree Review
A 360-degree review allows the CEO, the senior management team, and/or staff to evaluate the board. This gives the board the opportunity to determine how its governance style is affecting some key stakeholders in the organization: the professional staff.

Implement Results
It’s equally important to use the results once they’re available. How boards present the evaluation results and implement them varies tremendously. They can be discussed at a meeting of the full board, or one-on-one with the chair. What’s important is that directors take time to assess the results and develop improvement plans - for the board as a whole and for individual directors.

In some co-ops, the peer evaluations remain anonymous and each board member receives a summary of them. Others discuss the peer evaluations up front and even identify the directors and their specific comments.

Specify in your governance policies that your board should perform an evaluation process annually or biannually at a special meeting, much like a planning meeting. In this “retreat” environment, you can fully discuss the evaluations and make plans for improvement.

It would also help to publish evaluation results for members to review, perhaps even with the election ballots. Many boards may find it difficult to approve such as process. But it would be an important assessment tool for the membership, which must determine the effectiveness of incumbent board members and whether to retain them.

15 Questions to Evaluate Your Board
Does the Board
Fully understand it responsibilities?
Have a clear structure (officers, committees, job descriptions, etc.)?
Have well-established and clear goals?
Stay on the policy and planning level to guide staff?
Receive regular reports on financial issues, budgets, product & program performance, and other matters?
Regularly monitor progress on goals and performance?
Effectively represent the co-op to the membership?
Effectively represent the co-op to the community?
Hold board meetings that focus on important matters?
Regularly evaluate and develop the CEO?
Approve comprehensive and professionally reviewed personnel policies?
Involve & hold the interest of each board member?
Represent stakeholders in terms of skills and diversity?
Encourage teamwork between directors & managers?
Accept and encourage expression of dissenting opinions?

Source: TEAM Resources, Tucson, AZ
For sample Board of Director Evaluation Forms, please contact Tim Harrington, CPA at tharringtonsprint@earthlink.net.
Volume 1, Issue 3
November, 2003