For more than 20 years, successive editions of the UK Corporate Governance Code and its predecessor have exhorted boards of companies to conduct an annual performance review or board evaluation.

For many UK-listed companies, and other organisations that choose to adhere to the code, a review of their board’s effectiveness has become an annual fixture. They seek to derive value from their review, but an overreliance on questionnaires and questionable independence denies some boards the opportunity to benefit fully from the exercise.

Despite the Financial Reporting Council (FRC) reminding companies in its 2021 review “that questionnaire-based external evaluations are unlikely to give a high-quality assessment of board effectiveness”, questionnaires remain popular.

There are good reasons, however, to avoid using just a questionnaire. Some factors to think about include:

1. A confidential one-on-one interview encourages a board member to be frank and open without the deterrent of having to commit their views to paper.

2. In an interview, a board member can think through all aspects of each topic in a free-flowing way, without being tied to answering large numbers of pre-set and possibly detailed questions.

3. An interviewer can ask follow-up questions when a board member expresses dissatisfaction with an issue, or probe if the interviewer feels that a response may merit deeper discussion.

4. A structured interview permits a board member to seek an explanation if they are unsure about the question asked by the reviewer.

5. Going beyond a questionnaire enables the whole evaluation process to be personalised, which will tend to elicit better information.

6. Questionnaires are generally devised in-house, can be biased and may miss key issues.

7. If a questionnaire is used and a question is answered negatively or fulsomely, an opportunity to ask how the board member would improve a situation, or to challenge undue praise, will only be possible if there is a follow-up interview.

8. Questionnaires may get stale, leading to boredom.

That is not to say that there is no role for questionnaires. A well-crafted questionnaire followed up with a one-on-one interview can be highly effective. At the other end of the spectrum, one-time use of a basic questionnaire alone may be a way of enticing an organisation which has hitherto been reluctant to have a board review to come to the party.

However, the FRC’s point stands: questionnaires alone are unlikely to yield “a high-quality assessment”. Nor do they meet the call in Provision 21 of the code for board effectiveness reviews to be “rigorous”.

Maintaining independence

Independence is equally crucial in board performance reviews. An independent review process ensures that the review is unbiased and free from conflicts of interest. This is particularly important in maintaining the credibility and integrity of the review.

One particular group that gives cause for concern regarding independence is executive search firms or headhunters.

Recommendation 12 of the 2009 Walker Report, which was commissioned in the immediate aftermath of the 2008 banking crisis, emphasises the importance of a formal and rigorous evaluation and transparency about other business relationships with an external facilitator. It is also the genesis of the wording about board performance reviews which has been used in every edition of the UK Corporate Governance Code since 2010.

It is noteworthy, however, that, of the 90-plus organisations which are signatories to the Voluntary Code of Conduct for Executive Search Firms produced by the UK government, 26 of them (or 29%) actively promote themselves to undertake board effectiveness reviews or similar assessments.

Why do search firms seek this business when they must be aware of the self-evident plurality of their roles? Is it a sprat to catch the mackerel? Or, of greater concern, is it a sprat to help these firms keep hold of the mackerel, including the temptation to go soft on a valued client?

Each board seeking an externally facilitated board performance review must decide where to place their company’s business but, without rigour and independence, the process risks becoming superficial and failing to deliver meaningful insights or improvements.

Boards need to ensure that the review process is thorough, objective and credible. By embracing rigour and independence, boards can enhance their effectiveness, uphold their governance responsibilities and ultimately contribute to the long-term success of their organisations.

Simon Osborne is an executive fellow with London Business School’s Leadership Institute, and, with Geoffrey Shepheard, is a co-founder and director of governance consultancy Conseo Board Review.