The board of directors is the cornerstone of the U.S. model of corporate governance. An effective board ensures that management runs a company in the long-term interests of shareholders, whom the board is elected to represent.
Over time, a board may become complacent or may need new skills and perspectives to respond nimbly to changes in the business environment or strategy. Regular and rigorous self-evaluations help a board to assess its performance and identify and address potential gaps in the boardroom.
Shareholders value detailed disclosure of the board evaluation process when making voting decisions about directors. Disclosures about how the board evaluates itself, identifies areas for improvement and addresses them provide a window into how robust the board’s process is for introducing change. To be clear, shareholders generally do not expect the board to reveal the details of individual director evaluations; rather, they want to understand the process by which the board approaches the task of continually improving itself.
This report discusses the two main approaches to disclosure of the board evaluation process that members of the Council of Institutional Investors (CII) believe to be especially useful for evaluating a board’s overall effectiveness. By highlighting disclosures that investors find meaningful, the report seeks to give companies a better understanding of the information their shareholders need to vote carefully for directors.
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