The Council of Institutional Investors (CII), an advocacy group for corporate governance and shareholder rights, has published a report that highlights two approaches to disclosure regarding a board’s process of self-evaluation that CII’s members (employee benefit funds, endowments and foundations, among others) consider “best-in-class.” According to the report, CII’s members want to better understand the process by which a board seeks to assess and improve its performance. In-depth disclosure regarding the board evaluation process is not, however, a common practice in the United States, where proxy disclosure regarding the self-assessment process is typically limited to statements that such a process exists. Comparatively robust disclosure of the evaluation process is more common in non-US jurisdictions, including Canada, the United Kingdom, Europe and Australia, where companies often detail what the evaluation process entails. According to CII, its members “are eager for details about the board evaluation process at U.S. companies.” Based on an informal survey in which CII gathered a selection of what its members considered “exemplary disclosure about the board evaluation process,” CII identified two approaches to disclosure that its members find particularly useful. The first approach identified in the survey focuses on the mechanics of the board evaluation process. Although this type of disclosure does not discuss the findings of specific evaluations, it details who evaluates whom, how often evaluations are conducted, who reviews the results and how the board decides to address the results. The second approach noted in CII’s report goes beyond a discussion of the board evaluation process to also include discussion of high-level, board-wide findings and remedial steps for areas identified for improvement in the most recent self-assessment. This second approach includes disclosure of key takeaways from the board’s review of its own performance, including areas where the board determines it performs effectively, areas for improvement and a plan of action to address these points in the coming year. To be clear, neither of the approaches advocated in CII’s report included, and shareholders generally do not expect, disclosure that reveals the details of individual director evaluations.
Click here to view the full text of CII’s report, which includes examples of board evaluation disclosure determined by CII and its members to be “particularly effective.”