Building on its 2014 report on Best Practices in Board Evaluation, which featured mainly foreign-based companies as at the time disclosure regarding director evaluations was not widespread in the US, the Council of Institutional Investors has released an updated report based on US proxy disclosures among large companies. The report comes at a time when companies are increasingly disclosing details about their board evaluation processes that previously were kept internal (a recent EY study found that 93% of the Fortune 100 provided substantive disclosure regarding board evaluation in 2018). The new CII report includes "seven areas of strength" in disclosure and features the disclosures of ten companies including Center Subscribers Bank of America and McDonald's. Highlights include the following:
- Three-Tier Review. CII notes that boards may be assessed at three levels - board, committees and individual directors - with varying levels of formality from conversations to written evaluations.
- Peer Review. Several companies disclosed that the board at least considered peer reviews or input from senior management for individual director assessments.
- Timing and Format. Warning against a "perfunctory process," the report suggests companies pay special attention to the format of each type of evaluation. For example, Bank of America discloses that in addition to the formal board process, the company's lead director speaks with each board member at least quarterly and that the Corporate Governance Committee actively discusses the appropriate approach for evaluation each year.
- Follow-Through. The report suggests that companies consider disclosing any changes the board has made as a direct response to the previous year's evaluations. This will be a company-specific decision, since such details may well be outside the scope of what a company is comfortable publicly disclosing.
- Link to Succession Planning. Several companies in the sample disclosed how the process of board evaluation helped inform a diverse slate of director skills, experiences and knowledge base and prevented gaps.
- Role of Lead Director. CII considers it a best practice for the independent chair or lead director to take a prominent role in the board evaluation process. This is already common practice at most companies, as it shows strong independent leadership on the board.
- Use of Technology/Third-Party Platforms. Several companies, such as McDonald's, disclosed that they make prudent use of an independent third party to compile evaluation results to protect anonymity.