Is Your Board Accountable?
How do we hold ourselves accountable?
For me, one instrument of personal accountability is the bathroom scale. As I have gotten older, I find that weight goes on faster than it came off when I was younger. The scale holds me accountable for all the Christmas cookies and Easter candy that I couldn’t resist. Its (often) harsh judgments are coldly objective and can’t be disputed.
We often hold other people accountable (politicians, coaches, 16-year-olds with a bad report card), but it can be more difficult (and is done less frequently) to hold ourselves accountable — especially since there are many decisions and behaviors that can’t be judged with the same cold objectivity as a bathroom scale.
Where am I going with this?
It’s tough for a board to hold itself accountable. The board of directors sits at the top of the corporate food chain like an apex predator. The board can fire the CEO, but who can fire the board? Theoretically, individual directors at public companies with board term limits can be “fired” if they’re voted down at the annual shareholders’ meeting, but this happens so infrequently at publicly owned banks that it’s not a credible threat. And many banks don’t have term limits or mandatory retirement ages — less than half of the 159 participants in our 2020 Governance Best Practices Survey said their bank had a mandatory retirement age that it strictly adheres to, and just 5% had tenure or term limits — so an underperforming director can stay on a board for years unless someone asks them to leave.
One of the best ways that boards can hold themselves accountable is with an annual evaluation, where directors are asked to rate their board’s performance across a number of categories. In our 2020 governance survey, 51% of the respondents said their bank did not conduct an annual assessment of their board’s performance. We rephrased the question a little differently in our upcoming 2021 Governance Best Practices Survey; 43% of the respondents said their board does an annual performance assessment, 21% said they do an assessment but not annually, and 36% said their board doesn’t conduct an assessment. (The results of the 2021 survey will post to BankDirector.com on May 10, so watch for it.)
A small number of banks in the 2021 survey also do peer-to-peer performance evaluations. Ten percent of the respondents said their bank does these annually, and 14% conduct them less regularly.
A thorough assessment process, even if it’s not done annually, is one way that a board can hold itself accountable for its performance. I believe it is a vital tool that can improve the governance process for the good of the bank. If you’re reading this email, then your bank is a member of our Bank Services program. And as a member, you are eligible to use our Board & Executive Performance Surveys at no extra cost. This benefit is included in your annual membership fee. We have developed an extensive library of questions, so the survey can be tailored to your board’s specific needs.
If your board is serious about its performance and believes in holding itself accountable, there’s no excuse not to take advantage of this opportunity. Contact our team at 615.777.8461 or [email protected] to learn more.
