Key aspects to consider in a board evaluation – the case of Apple

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I recently conducted a board evaluation process for a mid-sized company in the financial services industry. I was asked by the board to lead the evaluation, and I worked closely with the Chairman,  CEO, Secretary and other senior leaders for an effective evaluation process. Since 2015, I have been privileged to lead or be part of board evaluations of so many institutions, especially government parastatals and financial institutions.

The starting point is to define the scope of the evaluation and who will be evaluated. In addition to the full board evaluation, a comprehensive board evaluation involves evaluating the Board Chairman, Secretary, CEOs, Committee Chairpersons; individual board members, and evaluating the board as a whole and the respective committees.

When evaluating the board, the key issues covered include:

Board composition — You want to know how the board is composed in terms of diversity of skills, experience, age, gender and industry knowledge. Ultimately, the objective of the evaluation is to conduct a current state assessment to identify the gap and recommend improvements.

We evaluated the skills and experience of the board members, as well as the diversity of perspectives and backgrounds represented on the board. We also considered the size and structure of the board, and whether any gaps in expertise or experience needed to be filled. The outcome was a detailed board skills mix and gaps; with recommended new skill sets needed on the board to make it more effective.

Insight: Evaluate whether the has the right mix of skills, experience, and perspectives to effectively lead the company. Examine the availability of key skills, including expertise in finance, technology, networking, marketing, global perspectives and operations.

Board processes: How does the board make decisions? Boards add value before, during and after board meetings. How are meetings conducted? The quality of board packs to empower the board to understand the business and be empowered? We evaluate the effectiveness of the board’s decision-making processes, including the use of committees, the role of the CEO and other senior executives in providing input and guidance to the board, and the availability of relevant information to board members.

Insight: Assess the relationship of the board with management, including the CEO, to ensure that it is constructive and collaborative and that the board can effectively oversee management and hold it accountable. The board should also consider the frequency and content of management presentations to the board and the availability of relevant information to board members.

Board effectiveness: How does the board fulfil its obligations of oversight and going concern? We evaluated the overall effectiveness of the board in fulfilling its obligations, including its ability to provide strategic direction, risk management, and provide oversight of the company’s financial performance and ensure overall good governance in terms of strategy implementation and shareholder value growth.

Board culture: We evaluated the culture of the board, including the tone at the top and the level of engagement and participation of board members, to ensure that it is supportive and conducive to effective governance.

Board education and training: The board should evaluate the education and training opportunities available to board members, to ensure that they have the knowledge and skills needed to effectively govern the company.

Insight: Assess the culture of the board, including the tone at the top and the level of engagement and participation of board members, to ensure that it is supportive and conducive to effective governance. Take time to review the board’s communication and collaboration processes, as well as an assessment of the level of engagement and participation of individual board members. Examining the meeting attendance rate of the different board members helps to assess the degree of involvement and commitment.

Board education and training: I evaluate the education and training opportunities available to board members, to ensure that they have the knowledge and skills needed to effectively govern the company. One of the key outcomes expected of a board evaluation is the board training plan for the next 12 months, informed by the identified skills gaps at the board level. You must recommend a training program that is practical to close any identified gaps unless such gaps can be closed by hiring a new member with the required skills.

Insight: evaluate the education and training opportunities available to board members, to ensure that they have the knowledge and skills needed to effectively govern the company. This can include a review of the content and frequency of board training sessions, as well as an assessment of the level of participation of individual board members.

A case of Apple

Apple’s innovation culture is attributed to good governance practices. The company is said to regularly conduct board evaluations to assess its effectiveness and identify areas for improvement. In 2018, Apple undertook a comprehensive review of its board processes and composition.

Key areas evaluated were:

The skills and experience of its board members, as well as the diversity of perspectives and backgrounds represented on the board, were assessed. Following the evaluation, Apple is said to have added two new independent directors to the board to bring in new perspectives and expertise.

The effectiveness of its decision-making processes, including the use of committees and the role of the CEO and other senior executives in providing input and guidance to the board, were assessed. The use of technology, such as videoconferencing, to facilitate communication and decision-making was reviewed, and board members were interviewed about their experiences during online meetings to assess opportunities to improve.

More importantly, the board’s relationship with management, including the CEO, and top executive directors ensured that it was constructive and collaborative. Also reviewed were the frequency and content of management presentations to the board and the availability of relevant information to board members; as well as the quality of board packs and the timelines they are provided to the board before a meeting to allow for adequate preparations.

Apple evaluated its overall effectiveness in fulfilling its obligations, including its ability to provide strategic direction and provide oversight of the company’s financial performance and risk management, including cybersecurity, fraud and third-party risks. The performance of individual board members and the overall performance of the board against specific goals and objectives – the board scorecard and respective board member scorecard. This helped to assess the effectiveness of an individual board member.

Also evaluated was the culture of the board, including the tone at the top and the level of engagement and participation of board members in the company activities and events, specifically board meetings. The communication and collaboration processes of the board, as well as the level of engagement and participation of individual board members, were examined.

The results of the board evaluation at Apple were value-adding.  Several areas for improvement were identified including the addition of new board members and the enhancement of its decision-making processes; as well as a new board development plan to close identified skills mix gaps. This helped to further strengthen the effectiveness of the board and position the company for continued success.

To win, start at the top. Conduct a comprehensive board evaluation with experts that are contemporary and savvy, due to their understanding of the issues at hand.

Copyright Mustapha B Mugisa, Mr Strategy. 2023 All rights reserved

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