Board of Directors' Skills Assessment

Nicholas J Price
5 min read
Best practices for good corporate governance don't directly identify skills assessment practices for boards of directors as a routine activity. However, best practices do suggest that boards work diligently toward developing a well-composed, well-qualified board of directors that has the necessary skills and abilities to lead a successful company.

According to EY, a board skills assessment is 'a strategic opportunity in a complex environment.' Nominating and governance committees find great value in skills assessments, as they identify gaps in the board's skills. Nominating committees can use the results of skills assessments to make recommendations to the board for director appointments that will round out a well-composed, diverse board with the appropriate set of skills.

Boards of directors express several reasons for performing skills assessments. Some boards are required to do them, and other boards recognize that it's to their benefit to do them. The most common reason for overlooking their importance is that it takes too much time to design, implement and evaluate the results. That doesn't have to be the case.

Skills assessments are usually part of self-assessments. Whether boards are required to conduct them or not, Diligent Corporation designed a software solution that makes skills assessments simple and fast.

Getting the Most Out of Skills Assessments

Public companies that are required to do annual self-evaluations should take advantage of the opportunity to add a comprehensive skills assessment section to the questionnaires. Considering a board self-assessment, major committee self-assessments, individual director assessments and a focus on skills in the assessments, boards will benefit by learning how they can best improve the functioning of the board. It's the best way to identify gaps in skills on the board and to make beneficial changes based on the results.

Developing a Robust Board Skills Assessment Process

The first stage in developing a vigorous board skills assessment process is determining what your board hopes to gain from the process. A good strategy is to look at how the board can benefit from a skills assessment process and gear the questions toward specific areas of need.

Consider focusing on specific governance areas for a robust board assessment process. The board should have clarity on their decision-making process. Analyze whether the board has the skills to accelerate decision-making without compromising due diligence.

Individual board directors should have the necessary skills to understand business operations, customer service and people management, and they should be able to communicate this understanding intelligently during board discussions.

A board skills assessment should include a focus on the board's knowledge of expertise in technology and cybersecurity issues. This focus area includes having board directors who have a deep understanding of the industry dynamics and the related threats to the company and other companies within the same industry.

Board director skills should encompass assessing the board's understanding of how shareholders' views on the company's strategy can impact or incite activist investors.

A skills assessment should be designed so that it highlights issues related to board director meeting preparation, meeting management and communications. Along these lines, all board directors should be adept at aligning their strategic goals with the company's mission, which will help them prioritize their goals and objectives.

Another area of great importance is assessing how team dynamics work for the good of decision-making or whether they're splintering the board's work and causing power struggles.

How Diligent Corporation's Self-Assessment Software Promotes Quality Assessments

Diligent Corporation is an industry leader in governance software. After creating a highly secure board portal system, Diligent continued to assess the needs of boards of directors of all kinds. One of the tools that came out of their creative process was an electronic self-assessment tool designed to streamline and enhance the process of board self-assessments. The self-assessment tool is now part of a suite of electronic solutions called Governance Cloud that provides for best practices for total enterprise governance management.

The software developers at Diligent Corporation cast a lens at the common problems with board self-assessments. With a focus on best practices, the developers kept best practices in mind when considering such issues as functionality, security, ease of use and automation.

Diligent's electronic assessment tool virtually eliminates the risk of human error. The program is highly intuitive so that it doesn't require any training to use it. Board administrators will appreciate how easy it is to import questions from previous years and add new questions to the mix, using a variety of responses with just a few clicks.

They'll find that Diligent's self-assessment tool saves them hours of time because it automatically tracks results and completions. The program automatically creates accurate charts and graphs boards can readily use for presentations.

Not only is the self-assessment tool valuable for board administrators, but board directors will highly value the convenience that the program provides. They can complete the assessment at their convenience using any electronic device that's handy. If they're not able to complete it in one sitting for any reason, they can simply log out of the platform and come back to it later. They can even log in conveniently, using their fingerprints.

Considering any type of electronic software, security should be a top concern for all boards. That's why the self-assessment program contains the same high-security standards as the Diligent board portal system that thousands of corporations have come to rely on in conducting their board business. Diligent is ISO 27001-certified for its Information Security Management System with SSAE 16/ISAE 3402 (SOC 1, Type 2) controls audited for nine consecutive years.

The Right Tools Encourage Boards to Conduct Meaningful Skills Assessments

A key component to aligning the company's strategic goals and risk oversight is having the right combination of skills on the board. The most appropriate balance of skills, experience and perspectives yields a well-functioning board that protects stakeholders, promotes long-term sustainability and supports good governance.

Boards are more likely to make a strong commitment to completing and using a skills assessment when the process is easier, cost-effective and convenient, such as Diligent's electronic self-assessment tool.