Board Evaluations and Boardroom Dynamics

Abstract

The boards of all publicly traded companies are required to conduct a self-evaluation at least annually to determine whether they are functioning effectively. Research suggests that while many directors are satisfied with the job that they and their fellow board members do, board evaluations and boardroom performance fall short along several important dimensions. We review the current state of board evaluations, and summarize how they can improve.

We ask:

• Why do board evaluations fail to review the performance of individual directors? • What are the social and psychological barriers to conducting effective evaluations, and how can they be reduced? • What behaviors are required to be successful in a boardroom setting? • How important is boardroom culture, and how does it influence decision making?

The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance and executive leadership. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books Corporate Governance Matters and A Real Look at Real World Corporate Governance.

Keywords: Board of directors, board evaluations, boardroom dynamics, board performance, board culture, coaching, succession planning, leadership, corporate governance research

JEL Classification: G3, G30, M10