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Setting Board objectives

11th February 2009 10 Comments

“We’ve just completed our board (self-) evaluation process and one of the points arising involves whether or not the board should set itself non-operational performance objectives (we do have specific operational objectives set each year – largely to establish a basis for assessment of the year’s/CEO’s performance).
Do others set themselves such non-operational objectives and, if so, what are they? I can see setting objectives related to non-compliance, or perhaps, for NED visits to subsidiary operations, or where there’s been a particular failing identified, but are there broader areas I’m overlooking?”

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  1. FTSE SMALL CAP said

    11th February 2009 at 12:01 am

    My answer is basically the same as the first answerer of the question. Out of the board/committee/director evaluation process (as required by the Combined Code), there is inevitably a list of action points. The company secretary then (diplomatically, as it can involve calling upon the chairman to improve his conduct!!) draws up a list of non-operational objectives (these flow out of those action points), and the board assigns director(s) with responsibility for each. The board then reviews at the half year how we are getting on with achieving objective. Nothing too prescriptive or formal, just a fairly standard process of identifying improvement points coming out of the review process and working out how to implement them.

    The objectives flow organically out of the board/committee/director review process so it’s hard to be specific about what they may be for any particular company in any particular year, but stuff like (as the questioner says) NED visits to subsidiary companies (and better NED communication with “the business” anyway), changes to the use of board time, and even rather mundane “housekeeping” actions like more efficient board meetings.

    • EX LISTED said

      11th February 2009 at 12:01 am

      We have tended to look at the outcomes of the annual Board evaluation and taken any specific non-operational outcomes as items for some combination of the Co Sec/CEO/Chairman to pursue. These haven’t been with a view to performance measurement of any of those or other individuals but rather just to try and improve the overall effectiveness of the Board.
      So, it doesn’t sound as if you are missing anything!

      • FTSE SMALL CAP said

        11th February 2009 at 12:01 am

        We are thinking about including non operational performance within the executive performance measures to be used in the coming year, but to date have not worked this into any form of solid proposal. The measures used will most probably be around safety and environmental improvement.

        • FTSE 250 said

          11th February 2009 at 12:01 am

          Sounds very sensible but I’ve never seen it done in practice.

          One thing to consider is the risk that “something changes” and corporate priorities shift (eg, you get an activist shareholder, a bank collapses or a predator emerges). This will consume board time and dominate the agenda, so the original objectives will fall by the wayside -the board clearly has not “failed” in that context as it dealt with the imperative.

          To cope with the unexpected, you may need enough slack in the targets to render them too easy and therefore meaningless!

          • FTSE 100 said

            11th February 2009 at 12:00 am

            0

            • FTSE 100 said

              11th February 2009 at 12:00 am

              My former company attempted and indeed drew up a draft list of objectives for the Board’s own performance measurement shortly before it was taken over so the Board never got to measure.
              It was a difficult and tortuous process to identify the objectives and most Board members struggled with what was produced.
              Having discussed with the Chairman, we haven’t looked to introduce such objectives at my new company but, who knows, it may come out of the next Board evaluation as a suggested approach.

              • FTSE SMALL CAP said

                11th February 2009 at 12:00 am

                We haven’t set objectives

                • FTSE 250 said

                  11th February 2009 at 12:00 am

                  Whilst this sounds like a logical thing to do (otherwise how else can one evaluate performance?) I have never known it to happen.

                  • FTSE 100 said

                    11th February 2009 at 12:00 am

                    We don’t set such objectives

                    • FTSE 250 said

                      11th February 2009 at 12:00 am

                      Not in my experience.

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