Event Summary: The Next Era of Board Evaluations

The Evolution of Board Evaluations

• Historically, formal board evaluations (as opposed to board effectiveness reviews) have been backward-looking by design; now there is a shift toward future-focused effectiveness.
• Four generations of board evaluation:
  
  – 1.0: Post-SOX (2002)—lengthy checklists based on institutional investor demands, low response rates, box-checking, and no real accountability.
  – 2.0: Late 2000s—evaluations used to identify known director performance issues, but too reactive.
  – 3.0: Post-2020—more thoughtful, interview-based processes with external facilitators, more candor, and attention to culture and team dynamics.
  – 4.0: Now—360-style processes involving management, committees, and the full board, with focus on goal-setting, future needs, and alignment to long-term strategy.

• Red flags include: failure to follow through on board evaluation findings; individual directors failing to participate; political maneuvering; and lack of link to strategic priorities.
• Evaluations must assess whether the board is having the right conversations at the right time, not just whether processes occurred on schedule.

What Modern Evaluations Need to Uncover

• Director readiness to respond to rapidly changing expectations in technology, strategy, and risk.
• Engagement dynamics: who is speaking, who isn’t, and whether debate is constructive.
• Whether committees are structured correctly for the evolving needs of the company.
• Strategic alignment: is the board surfacing issues early, or relying too heavily on check-the-box processes.
• Effectiveness of board-management interaction: real-time advisory vs. scripted management updates.
• Cultural and behavioral barriers: tokenism, politics, or avoidance of difficult conversations.
• Agreement on what quantitative scoring (e.g., 1–5 ratings) actually means, so numbers drive useful discussion rather than confusion.

Best Practices in Execution (PG&E Example)

• Independent third-party facilitation every three years, with internal surveys and interviews in between.
• Consistent questions year-over-year to track trendlines, refined annually to maintain relevance. Example of an impactful question: When you consider the overall background, skills, and diversity of the board, what areas stand out as strengths, where are the opportunities for improvement, and what is missing?
• Individual director interviews plus management input are helpful to uncover board blind spots.
• Corporate secretary ensures disciplined follow-through and supports committee chairs in driving actions.
• Closed-session debriefs after every meeting enable real-time adjustment.
• Evaluations must directly feed into board refreshment and succession planning.
• Annual education, retirement plans, and time-commitment discussions normalize succession conversations.

Role of Third-Party Facilitators

• Third party can include attorney or governance expert (recourse to an attorney, with the right procedural protections, can enhance privilege and transparency, while a governance expert can facilitate open and clear communication).
• Provide neutrality and enhance board effectiveness, especially when dominant personalities or issues are present.
• Enable candid interviews and anonymous 360° feedback from the entire board and the executive team.
• Deliver objective insight on team dynamics, not just individual performance.
• Particularly valuable during litigation or high-risk situations where attorney-client privilege matters.
• Attorney–client privilege protects confidential communication between a lawyer and client from disclosure in litigation or discovery, but only when the purpose is legal advice and access is tightly controlled; simply copying counsel does not guarantee protection.
• Help avoid burdening internal counsel or the corporate secretary with politically sensitive feedback.
• If evaluations could uncover sensitive issues, third-party legal facilitation minimizes litigation exposure and written artifacts.
• Consider a law firm other than regular outside corporate counsel, who can’t bring an independent voice to the discussion.

Size of Company and Readiness

• Annual board evaluations are required for NYSE-listed companies; Nasdaq does not mandate them, but most boards conduct them annually.
• Deeper dive evaluations tend to happen sporadically, and at most companies, are event-driven.
• Companies should begin annualized evaluation and refreshment planning 12–24 months before a potential exit or IPO.

Skills Matrices That Actually Drive Decisions

• Committees should be assigned based on real expertise, not politics or seniority.
• Annually assess emerging skill gaps in areas such as AI, cybersecurity, and culture to keep strategy and board composition aligned.
• Use matrices to enable mentoring connections between board members and with management.
• Move beyond rigid age or tenure limits and focus on ongoing contribution and impact.
• Refreshment should be proactive and scheduled in advance, particularly when directors serve one-year terms up for re-election.
• Boards should be clear on retirement timing and when specific skills will no longer be needed, allowing thoughtful succession planning.

Culture: The Ultimate Leading Indicator

• Performance conversations must be normalized and ongoing, not limited to once-a-year evaluations.
• Board members must understand changing skill requirements and commit to the organization’s strategic needs.
• Dominant voices signal cultural problems; they should be coached to bring others in and use their influence productively.
• Under-engaged directors should be supported and drawn into the discussion through proactive questioning.
• Courageous leadership is required from the chair, CEO, and committee chairs to address underperformance or disruptive behavior.
• Management should view the board as mentors and allies, not just evaluators.
• A growth mindset ensures evaluation is about developing directors, not policing them.
• Difficult discussions must be aligned and initiated by board leadership — chair, CEO, directors and committee members.

Where AI Fits

• The role of AI in the boardroom is evolving quickly, with highly regulated or scaled companies often forgoing this technology today due to privacy, confidentiality, and litigation discovery concerns. There’s a strong interest in leveraging this technology, with many companies starting to use it as of 2025, however other companies are being more cautious due to legal concerns.
• AI technology can be used to assess participation, timing, and inclusion patterns, creating real-time insights that support accountability. Note per the bullet above that this practice is evolving quickly.
• Directors will need to develop personal competence and confidence with AI to ensure oversight keeps pace with technological change.
• Third parties may incorporate some AI-enabled analysis to give boards a holistic view of group behavior and effectiveness.

Final Thoughts

• Continuous director education should be tracked, visible, and encouraged during meetings.
• Nom/Gov committees should treat evaluations as part of a broader development agenda, not a compliance ritual.
• Shareholder feedback should be included in effectiveness discussions, not dismissed.
• Boards should pick one or two focus areas each year — such as refreshment, KPIs, or skill-matrix updates — to drive real improvement.  Perfection is the enemy of the good!
• The most important question remains: Are we having the right conversations at the right time?

Resources

• Culture as the Foundation: Building a High-Performance Board – NACD Blue Ribbon Commission Report 2023
• Building a High-Trust Board-CEO Relationship — NACD Blue Ribbon Commission Report 2025
• The Artificially Intelligent Boardroom — Stanford Closer Look Series