As reported in today's Society Alert, CII's newly-released "Board Evaluation Disclosure" report updates its 2014 report based on its review of more than 100 proxy statements. The report identifies - and illustrates with reference to 2018 proxy disclosure excerpts - seven board evaluation process attributes that it believes are indicative of a robust process and that should be considered for disclosure, generally as follows:
- Three-Tiered Review: Assess performance of board, committees and individual directors.
- Consideration of Peer Review: Show that the board at least considered whether to supplement its individual director evaluations with anonymous peer reviews of fellow directors.
- Appropriate Timing and Format: Consider and disclose the frequency of the evaluation process and other ways of soliciting feedback from directors, and the use of a mix of evaluation formats.
- Evidence of Follow-Through: Identify examples of actions taken as a result of evaluations - ideally with reference to the company's strategic objectives.
- Linkage to Succession Planning: Demonstrate that the board uses the process to address board composition issues - including potentially identifying needs for new skills, experience or perspectives on the board.
- Strong Independent Director Leadership: The independent chair or lead director and Nom/Gov Committee/Chair should play key roles in the process, which should be explained.
- Prudent Use of Third Parties and Technology: Consider and disclose whether and to what extent the board considered using third parties or technology to enhance the evaluation process as appropriate.
Importantly, the report notes that the above seven indicators "are not intended to be prescriptive recommendations, but rather descriptive observations of companies' disclosure that is particularly effective at building investor confidence that a robust process exists. Investors should accommodate, and boards should exercise, flexibility to adopt processes that fit their unique strengths and circumstances."
The report also includes 10 companies' 2018 board evaluation proxy disclosures in their entirety that are intended to illustrate various approaches to effective disclosure.