Importance of board effectiveness reviews. Evaluating board effectiveness is achallenging task, but is crucial when it comes to improving companies’ performanceand reducing the likelihood of corporate failures. Company disclosure, which focuseson the measurable aspects, provides only a partial picture of a board’s functionality.Ticking all the boxes does not necessarily translate into good governance and canadversely give a false sense of security.

We think that board effectiveness reviews (BERs), especially those that areexternally facilitated, are an effective tool for assessing the qualitative andquantitative aspects of board effectiveness and giving the level of insight to investors,which they would struggle finding elsewhere.

BERs are particularly helpful when it comes to assessing board dynamics, which, asrecent research suggests, is a better predictor of company profitability than anyindividual director demographic characteristics.