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David Beatty

Tuesday, April 01, 2003

The toughest job for a chairman is to evaluate the performance of individual directors.

An alert and involved chairman will know which director contributes in which setting and which director is not really contributing at all. And a strong-willed chairman could call on each director annually to talk about the board and individual performance.

However, such a chairman would be the exception, not the norm. And it puts an extraordinary load on this one board member.

A different and less person-dependent solution is the peer review. In an annual peer appraisal, each director rates each other director's performance based on a variety of criteria, such as preparing diligently for meetings, contributing meaningfully to board discussions, questioning conclusions presented by management, raising tough questions, understanding strategy and demonstrating high ethical standards.

A director who is exemplary in a dimension of performance is rated a 3 in that category, while a 2 indicates perfectly satisfactory performance, and a 1 indicates improvement required.

The completed surveys are mailed directly to an independent consulting company, the results are compiled, and a letter is sent back directly to each director. No one, including the chairman, has access to the data.

The entire burden of improving performance rests upon the individual director after considering the feedback letter.

Each director has two opportunities to consider his or her contribution annually, first by working through a self-appraisal and then subsequently reviewing the peer evaluation. Time to think can result in the desire to improve.

For example, Director A went to the chairman to ask for help in deepening his financial knowledge. Director B, who was rated exceptional in "strategic vision" was proud of the achievement and worked hard over the following year to earn that accolade from her peers once again.

Individual peer evaluation can improve governance. Why doesn't every board do it?

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