News and Views
July 4, 2018
Posted in: WATSON Views
Find out how to prepare for a successful peer evaluation. Read Are You Ready for a Director Evaluation – Part 1 of WATSON’s Year of the Peer series.
Part 2 of WATSON’s 3-part Year of the Peer series
Shared purpose – check.
Evaluation ready – check.
Whatever you do, do not just do what other boards are doing. Peer evaluations are nuanced and deserve a customized approach. After all, when it comes to governance, one size does not fit all.
9 Steps to Customizing Your Director Evaluation Process
Design a peer evaluation process that works for your board by ensuring there is agreement on the following questions:
1. What is the objective?
The true purpose of a director peer evaluation exercise is not to create a report card for directors but to provide each director with a sense of how fellow directors view their performance, where they are seen to perform well and where their peers see opportunities to contribute further to the board’s performance. Determine what your board hopes to get out of the process and work backwards from there.
2. Who will lead the process?
While the Governance Committee or Chair may lead the process internally, many boards use an outside party to gather and analyze feedback (either through the use of surveys or interviews). An externally led process offers the most confidential environment so directors feel comfortable sharing candid feedback on their fellow directors, which is central to a meaningful peer evaluation. Whether or not an external consultant is used, consider who is best positioned to lead the process on behalf of the board.
3. Who will be evaluated?
To be truly effective, all directors should receive personalized, confidential feedback on their performance. Directors may also receive feedback on their contribution as members and/or chairs of committees. The Board Chair should also receive feedback on their chair role, either through a separate chair evaluation process or as part of their director evaluation report.
4. Who will participate in the evaluation?
Most often, only directors provide feedback as part of a director evaluation process. However, when dynamics and board/management relations and strong, some boards also seek feedback from members of management who engage regularly with the board.
5. What will be evaluated?
A well-rounded evaluation balances the distinctive set of competencies that each director brings to the boardroom with the general competencies expected from all directors, as set out in a Director Position Description or Terms of Reference. The criteria for measurement typically include:
- Level of knowledge in key areas (e.g., industry knowledge, business knowledge, financial acumen)
- Observable, behavioural characteristics (e.g., preparation, strategic perception, boardroom contribution, boardroom style, interaction with management)
6. How will the feedback be collected and managed?
As with board evaluations, interviews typically yield deeper and more nuanced insight, although it is quite common for boards to seek feedback on individual director performance by way of a structured survey. Many boards opt to do both. When using a survey, include both quantitative and qualitative questions. Use open-ended qualitative questions to elicit deeper feedback, for example: How would you describe this director’s boardroom style (i.e., interaction with fellow directors and management)?
Provide directors with a primer outlining tips on how to share constructive feedback (specific, low in judgement and supported by examples) and make their comments as clear as possible to avoid misinterpretation.
If management is providing feedback as part of the process, care should be given to how they provide feedback. Often members of management feel more comfortable sharing qualitative feedback through open-ended survey questions or confidential interviews.
7. What will be done to ensure confidentiality?
Feedback is typically gathered from each participant on an attributed basis so the person leading the process can clarify feedback with the author as necessary. However, feedback is shared with each director on an unattributed basis. Careful attention must be paid to diligently strip language, phrases and examples from feedback that might be traced back to the author.
Regardless of who is leading the process, their ability to ensure strict confidentiality of all feedback is critical to the integrity of the process.
8. How will the data be compiled, analyzed, interpreted and presented?
Data is typically compiled, analyzed and interpreted by whoever leads the process. However, when internally led, analysis and interpretation can be susceptible to unintended bias and those leading the process should take great care to analyze and interpret the feedback in an objective and consistent manner. Results are typically presented in confidential written reports, seen only by the director in question and the Chair.
For quantitative feedback, it is common practice to provide each director with a summary of the feedback, showing the director’s self-assessment and the average assessment of the director by peers (and sometimes the average assessment of the director by management, if sought). For qualitative feedback, the feedback is categorized into key themes supported by specific comments or fed back as is. In the case of the latter, ensure those providing feedback are aware that their unedited feedback will be shared with directors (minus anything inflammatory or inappropriate) – this often changes the nature and tone of feedback provided.
When management provides feedback, it is important to consider whether their qualitative feedback is presented separately or woven into the director feedback. Often when the management team is small, their feedback is incorporated into director feedback to protect anonymity.
9. What will we do with the results?
Once the feedback has been gathered, the Chair leads a one-on-one coaching session with each director to review the feedback. If an external consultant is involved, typically the consultant first shares the results with the Chair and coaches them on how to deliver the feedback. In some situations, the consultant and Chair may jointly deliver the feedback. Some boards follow up with a written memo outlining specific agreed upon actions.
The Board Chair, Governance Committee or full board are often provided the average board and management rating for each question to guide board development.
As with board evaluations, many boards struggle with implementation and follow-up of director evaluations. To overcome this hurdle, we recommend directors acknowledge the feedback received and any action items discussed with the Chair. It is also useful to invite directors to reflect on their own performance – what do they think are their major contributions and where could they improve their contribution. Together, the Chair and director should agree on a follow up plan, based on the feedback provided in the evaluation.
Hey WATSON, how does the board’s skills matrix fit into the director evaluation process?
One innovative approach is to use the director evaluation process to assess directors against the board’s skills matrix. Instead of having directors self-assess their own skills, each director is asked to identify the areas in which other directors are seen to make a significant contribution to boardroom discussions. The results show the overall perceived strength of the board in relation to the stated needs.
Peer evaluation is an evolving practice. While some boards are reluctant to become too formal in their approach to individual evaluation and feedback, those who embrace the concept of feedback have found the process to be an important part of director development and continuous improvement.
Stay tuned for Part 3 of the Year of the Peer series: Mastering Peer Evaluation Feedback
June 17, 2018
Posted in: WATSON Views
Part 1 of WATSON’s 3-part Year of the Peer series
This may not be your year, no matter how much talk there is about peer evaluations. Although over 90% of the largest boards in Canada have adopted director peer evaluations1, the timing may not be ideal for your board. But it just may be the right time to start the conversation. Like all aspects of intentional governance, the conversation begins with understanding your board’s purpose in pursuing an evaluation. It also comes down to readiness. Without both, there is a risk of the process causing more harm than good, particularly when it comes to relationships and board dynamics.
The true purpose of a director peer evaluation exercise is not to create a report card for directors but to provide each director with a sense of how their performance is viewed by others, where they are seen to perform well and where fellow directors believe there are opportunities to contribute further to the board’s performance. Directors tend to take feedback from their fellow directors very seriously. Though a collective openness to an evaluation is critical, it isn’t always enough.
Your board may not begin with a unified point of view. That’s OK. The depth of dialogue and willingness to share and hear each other’s perspectives is a sign of a healthy board. If it feels like directors are close, keep the conversation going until there is a unified point of view. If there are too many divergent opinions, you may consider parking the issue for now and revisiting at a later date.
Evaluating the performance of the people as well as the board as a whole is best practice, but it may not always be the right practice for your board. Boards should consider four factors when deciding whether or not to formally evaluate individual directors:
- Evolutionary state of the board
- The length of time directors have served together
- Organizational history
- Strength of board culture and dynamics
Most boards do not pursue a peer evaluation until they are confident in the quality and effectiveness of their underpinning governance practices and policies, from a solid board manual to a sound code of conduct. They also take continual improvement seriously. Too often boards invest considerable time, money and resources in evaluating board and director performance and then fall short on implementing recommendations and sustaining change. Peer evaluation-ready boards have experience in both evaluation and implementation.
Take the Readiness Test
Before you assess your readiness, ask yourselves one BIG question: Why are we doing a peer evaluation? If directors are not 100% in agreement on the WHY, then all the readiness in the boardroom will not guarantee a successful outcome.
Once you know the WHY, consider the following questions to determine whether or not your board is ready for a peer evaluation:
- Do we regularly evaluate the full board?
- Do we have position descriptions for individual directors?
- Do we have director performance expectations?
- Will the full board own the process?
- Would our board dynamics be characterized as respectful and open?
- Are we confident that this process will not cause harm to any directors?
If you answer NO to any of these questions, your board may not be ready at this time. Recognizing this can help you get there in the future. Think about why you answered no to the question and what specifically needs to shift to turn that answer to a yes.
If you answered YES to all six questions, you may be ready. But what are you ready for? As with board evaluations, there is no “one size fits all” approach to peer evaluations. The specifics of the process are typically developed by the governance committee based on the evolutionary state of the board, the expectations of directors and the previous experience of directors with peer evaluations. When designing a peer evaluation process, consider and ensure there is agreement on the following questions:
- What is the objective?
- Who will lead the process?
- Who will be evaluated?
- Who will participate in the evaluation?
- What will be evaluated?
- How will the feedback be collected and managed?
- What will be done to ensure confidentiality?
- How will the data be compiled, analyzed, interpreted and presented?
- What will we do with the results?
The difference between a mediocre evaluation and a game-changing peer evaluation lies in a deliberate, thoughtful approach. Understanding your purpose and assessing your board’s readiness ensures your board starts off on the right foot. When you have both purpose and readiness, it may just be the perfect time to build the right peer evaluation for your board.
Check out Part 2 of the Year of the Peer series: Customize Your Approach to Peer Evaluation
May 16, 2018
Posted in: WATSON Views
24/7 connectivity makes it almost impossible to leave work at the office. Now imagine the challenge of trying to distance work from family when the CEO and the senior executive team gather around your table for Sunday dinner. Such is the reality for many a family business. Work-life balance takes on a whole new meaning. Next, layer on the ever-sensitive discussion of succession planning, and you can guarantee emotions will run high. Survival rates from generation to generation paint a bleak picture. But there are family businesses who defy the odds. And although it may look easy from the outside to be the children of the president, well-orchestrated succession in a family business is a direct result of intentional governance.
Founders and their families excel at working IN the business, bringing a passion for the operations seldom-rivaled in non-family businesses. But working ON the business is often a hard fought battle. However, successful family businesses with an eye on the future aim to strike a balance between working IN and ON the business, the growth model made popular in Michael Gerber’s The E-Myth. Taking a page from publicly traded organizations large and small, family businesses invest in regular forward-focused planning, including the often overlooked and undervalued process of working on the business of transition. When the time comes to hand over the reins to the next generation, both the business and family are ready. This readiness extends beyond the current CEO and incoming heir, to the broader family including those actively involved in the business and those who are not part of the day-to-day operations. In family businesses that have successfully navigated the business of transitioning leadership from one generation to the next, two themes rise to the surface: continuity and communication.
Rife with emotions and speculation, poorly executed succession planning can stall an organization’s performance for months or even years. To overcome this potential derailing, family businesses are shifting their focus from succession to continuity. They look beyond the pure act of transition from the current CEO to the next-in-line leader to establishing business practices that contribute to the company’s long-term success.
Build an External Advisory Board – It can be lonely at the top and many founders or CEOs are hesitant to share challenges or problems with their family members to spare them the worry or to avoid the perspective of ‘not having all the answers’. Advisory boards are an excellent way for family businesses to seek guidance, particularly in times of unexplored business opportunities such as mergers, acquisitions or expansion. Advisory boards tend to be smaller than governing boards and play a different role by making non-binding recommendations. When populating an advisory board, consider: experience relevant to the company’s industry and line of business, passion, fit, customer or supplier insight, advisory experience, availability and credentials.
Revisit Succession Readiness Annually – Traditionally, the transition from single founder to heir may have been relatively straight-forward, depending on the number of children and how each child had been groomed for succession. However, subsequent generational transition can be muddy, with each generation vying for their children to be part of the business. First born is no longer guaranteed the corner office. Nor can a family business ignore the fact that the deemed successor is rarely ready to capitalize on unforeseen business opportunities. Annually, the senior leadership team should revisit the 3-5 year growth strategy and assess the potential heir’s readiness to lead the company in the desired direction. Some questions to consider:
- Does transition make sense now, given the potential business opportunities?
- What skills and experience will the business need in the next 3 to 5 years?
- Is there a family member with these skills and will they be ready to take over in the succession timeframe?
- Do we need to bring in someone externally to lead the company until Junior is ready?
- How can we help Junior successfully execute in unchartered territory?
- What development or support should we provide Junior to lead the company through the next phase?
- When will transition happen?
- What’s the strategy for introducing Junior to key customers and external advisors?
- What involvement should the outgoing CEO have in the company?
- How will the transition be communicated internally and externally?
Ready the Next Generations – Under the umbrella of continuity, family businesses should look to create ways for the next generation to learn the business and business in general. Many children in family businesses have been working odd jobs in the company since they were old enough to collect a pay cheque and assume that they will always work there. But time-in doesn’t necessarily equal the requisite skills and experience. To ensure the next generation is ready to take on a leadership role, family businesses should build a thoughtful and comprehensive development plan. Consider the following tips:
- Bring in a senior executive to coach and mentor successors. This is particularly effective when the company is facing a potential business opportunity that it has never before encountered, such as an acquisition or expansion. In addition, coaching coming from an outsider is often received more positively than from mom or dad.
- Encourage children to work outside of the company first. This provides the successors with opportunities to learn and excel in an environment where your last name doesn’t matter. It also has the added benefit that when the child returns to the company, they bring back valuable skills, approaches and perspectives they would not have been able to learn inside the family business. A note of caution – some family businesses set a specific time requirement for children to work outside the company; in some cases this can backfire, as the heir finds themselves happy and successful in another organization and may not wish to return to the family business.
- Develop intrapreneurship opportunities whereby the next generation can build and grow a project within the company. Back the initiative, establish guidelines (including budgets, resources and performance expectations) and then stand back. This provides the successors with an opportunity to develop leadership skills and work independently, while providing the senior leadership with visibility into strengths and areas for growth.
- Build comprehensive orientation through a rotational work program. Although some children may have worked in multiple divisions as teenagers, a rotational work program requires a 6-12 month internship in each key division, such as manufacturing, marketing, finance, and HR. Prior to each internship establish goals and conduct a fulsome debrief upon completion, to gauge interest, aptitude and passions.
Transition Decision Making – Many families create clear succession plans outlining who moves into what role and when, but neglect to detail the transition in decision making. It makes it difficult for the new CEO to lead when the exiting patriarch and matriarch weigh in, or worse, second-guess, their children’s vision and execution. This interference trickles down very quickly in both the business and the family. Establish guiding principles on how decisions will be made and who will be involved based on the nature or scope of the decision.
In any organization, when it comes to transition and change, communication is key. It can be the difference between retention and turnover, acceptance and resistance, and ultimately, success and failure. Throw in family dynamics and the need for clear, timely and broad communication amplifies.
Continue to Check-in – Being born into a family business may not be the golden ticket to a happy career. Some children grow up watching their parents work long hours in the company and consciously choose not to follow in their footsteps, but this may not match expectations from mom and dad who assume the kids will take over. Or, in some cases, dad knows that Junior just doesn’t have what it takes to run the company. Often, these unspoken differences in opinion fester until families fall apart and companies flounder. In any business, communication between CEO and management is critical; in a family business it is the difference between peace and chaos at both the board and the dining table.
Bring in a Facilitator – Regardless of how healthy the family dynamics are, it may be worth engaging a professional facilitator trained as a Family Enterprise Advisor to help open the channels of communication. This generally starts with meeting individually with each family member to get a sense of the family dynamics, values, challenges, how conflict is dealt with, etc. This information forms the basis for a family meeting to discuss trends and to start a conversation about a Family Charter and Code of Conduct to provide guidance on how future conflict will be addressed.
Create Communication Rhythms – Communicate early, often and broadly. Within the business, establish weekly, monthly, quarterly and annual communication forums with key family and executives in the management team to review results, assess initiatives, and as necessary, adjust plans. Succession planning should be an annual conversation about the evolution of the business, and the future skills required, to ensure these are being developed in potential future leaders. Within the broader family, set up events to bring together everyone above a set age (e.g., 16) to talk about the business in more general terms. These family events create a window into the business for younger family members to see what the company is all about and generate interest in taking a more active role in the future.
Working on the business will never equal working in the business in terms of time and energy. Yet, when measured in importance to the long-term success of the business, few things are more important than working on the business of transition.
May 3, 2018
Posted in: WATSON Views
Rachel brings over twenty years of experience to WATSON’s clients, including senior roles as general counsel and corporate secretary, twelve years in private practice with a tax speciality, and directorships. Rachel will focus on board and director evaluation, governance reviews, and issues advice. She will draw on her broad background to provide clients with outstanding governance advice and counsel.
Prior to joining WATSON, Rachel served as BC Regional Leader of Simplex Legal LLP, a national law firm offering out-sourced in-house counsel. Before that, Rachel served as the Chief Legal Officer and Corporate Secretary of Alaris Royalty Corp, where she designed the corporate governance and risk management programs and spearheaded the legal and tax teams to negotiate and finalize agreements for investments of over $800 million of invested capital. Rachel is currently a director and audit committee member of Decisive Dividend Corporation, and sits on the investment committee for the Canadian Bar Association as well as the steering committee for the Vancouver chapter of Women in Capital Markets. She is a sought after speaker on governance related issues.
WATSON is the largest firm of its kind in Canada and focuses exclusively on support for boards of directors and senior executives in relation to recruitment, governance and leadership support and feedback. WATSON is founded on the belief that bringing an intentional approach to governance and recruitment helps organizations perform better. Since 2005, WATSON has helped hundreds of organizations establish or improve their approach to governance; conduct governance reviews, conduct board, director and CEO evaluations; educate their boards and management teams; plan for board and CEO succession; and connect with high performing directors and CEOs. WATSON’s clients include private and public companies, public sector entities of various models, regulatory bodies, major trade and professional associations and not-for-profit organizations.
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