eGuide to CG Code

The NC recommends for the Board’s approval the objective performance criteria and process for the evaluation of the effectiveness of the Board as a whole, and of each board committee separately, as well as the contribution by the Chairman and each individual director to the Board.
 
A. Explanation

This Provision describes the key elements of a robust assessment process for evaluating the effectiveness of the Board.

It is an established practice for companies to have a system of regular appraisals for individual staff and the organisational units, the purpose of which is to assess their performances so that in part, they can be rewarded or penalised. More importantly, the goal is to improve on their future performance with the appropriate support and changes.

Although it is the highest governing body in the company, the Board should not be exempted from the evaluation process.

Board evaluations, however, differ from other evaluations in the company in one key aspect: the process is primarily one of self-evaluation. That is, the Board and its directors evaluate themselves and each other.

In this context, to ensure that the evaluation is effective, the following elements are important:

  • Evaluation Process
    There should be a robust evaluation process that is designed and approved by the Board. Such a process should ideally include the use of external facilitators (see Provision 5.2).
  • Evaluation Levels
    The evaluation should be comprehensive. It should be conducted at the following levels:
    • The Board as a whole.
    • Each of the Board Committees.
    • Each individual director including the Board Chairman.
    • The relationship between the Board and management.
  • Evaluation Criteria
    For a performance evaluation to be effective, it is important to set objective performance criteria against which results can be compared.

    Practice Guidance 5 suggests that the board evaluation criteria should take into account:
    • The Board’s composition (balance of skills, experience, independence, knowledge of the company, and diversity).
    • Board practices and conduct.
    • How the Board as a whole adds value to the company.
    • Use of peer comparisons and other objective third party benchmarks.
    • The criteria should not change from year to year; and where they are changed, the Board should justify such changes.

The Practice Guidance also suggests that the evaluation of an individual director’s performance should aim to assess whether he is willing and able to constructively challenge and contribute effectively to the Board, and to demonstrate commitment to his role on the Board (including the roles of Chairman of the Board, and chairman of a board committee).

  • Communication and Actions
    The evaluation process and performance criteria need to be communicated to, and be approved by, the Board before the evaluation is conducted.
    Following the evaluation, the results are communicated to the Board as a whole and to individual directors.
    The Chairman should then act on the evaluation results and, in consultation with the NC, propose, where appropriate, that new members be appointed to the Board, or that certain directors be asked to resign.
  • Disclosures
    The board assessment process is disclosed (see Provision 5.2).

 

B. Practice Guidance

 

C. Related Rules and Regulations
  • Nil.

 

D. CG Guides
  • NC Guide 1.3: Terms of Reference [NC Composition].
  • NC Guide Appendix 1C: Sample NC Terms of Reference [Sample NC Terms of Reference].
  • NC Guide 2.2: NC Calendar [NC Agenda].
  • NC Guide Appendix 2C: Sample NC Calendar [NC Agenda].
  • NC Guide 6.1: Introduction [Board & Director Evaluation].
  • NC Guide 6.2: Board Evaluation [Board & Director Evaluation].
  • NC Guide 6.3: Board Committee Evaluation [Board & Director Evaluation].
  • NC Guide 6.4: Director Evaluation [Board & Director Evaluation].
  • NC Guide Appendix 6B-1: 360° Assessment Process for Executive Directors [Board & Director Evaluation].
  • NC Guide Appendix 6C: Sample Board Performance Evaluation Form [Board & Director Evaluation].
  • NC Guide Appendix 6D: Sample Board Committee Performance Evaluation Forms [Board & Director Evaluation].
  • NC Guide 8.2: Disclosure Requirements [Disclosure Requirements].

 

E. Related Articles

 

 

 

eGuide to CG Code
Overview
Preamble
Definition of Corporate Governance
History and Structure of the Code
Role of the Board
Role of the Chair
Focus on Long Term and Sustainability
Revised Code Structure and Approach
Mandatory Principles
Provisions and Variations
Thoughtful and Meaningful Application
Board Matters
Principle 1
Provision 1.1
Provision 1.2
Provision 1.3
Provision 1.4
Provision 1.5
Provision 1.6
Provision 1.7
Principle 2
Provision 2.1
Provision 2.2
Provision 2.3
Provision 2.4
Provision 2.5
Principle 3
Provision 3.1
Provision 3.2
Provision 3.3
Principle 4
Provision 4.1
Provision 4.2
Provision 4.3
Provision 4.4
Provision 4.5
Principle 5
Provision 5.1
Provision 5.2
Provision 5.3
Remuneration Matters
Principle 6
Provision 6.1
Provision 6.2
Provision 6.3
Provision 6.4
Principle 7
Provision 7.1
Provision 7.2
Provision 7.3
Principle 8
Provision 8.1
Provision 8.2
Provision 8.3
Accountability and Audit
Principle 9
Provision 9.1
Provision 9.2
Principle 10
Provision 10.1
Provision 10.2
Provision 10.3
Provision 10.4
Provision 10.5
Shareholder Rights and Responsibilities
Principle 11
Provision 11.1
Provision 11.2
Provision 11.3
Provision 11.4
Provision 11.5
Provision 11.6
Principle 12
Provision 12.1
Provision 12.2
Provision 12.3
Managing Stakeholder Relationships
Principle 13
Provision 13.1
Provision 13.2
Provision 13.3
Practice Guidance
Board Roles and Director Duties
Board Composition and Guidance
Chairman and CEO
Board Membership
Board Performance
Procedures for Developing Remuneration Policies
Level and Mix of Remuneration
Disclosure on Remuneration
Risk Management and Internal Controls
Audit Committee
Shareholder Rights and Engagement
Engagement with Shareholders
Managing Stakeholder Relationships
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