The added value of an external board assessment: in-depth case studies

Details

Supervisors

Sarens, Gerrit

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion

Abstract

Recent years have witnessed corporate governance failures such as the one of Enron (2001) and the 2008 financial and economic crisis that led corporate governance, and therefore the board of directors, to be increasingly regulated. To avoid failures at the board level and guarantee a satisfactory level of effectiveness, corporate governance codes, academics and practitioners recommended companies to conduct board evaluations regularly to improve their governance quality. As a result, board evaluations became an increasingly common practice among top companies. However, these evaluations were mostly internal, informal and usually conducted for compliance, and therefore not adding significant value. As a consequence, I argue that external board evaluations represent the best-in-class solution to assess board performance and improve the latter. The objective of this thesis was to determine the benefits of conducting a board evaluation first, then the extra benefits of doing it externally rather than internally. To do so, the first section includes an academic literature review that highlighted the need for an adapted board evaluation process, as well as the superiority of an external board review (compared to an internal one) in terms of a greater objectivity and independence of opinion, the greater confidentiality and candor it guarantees, the external perspective it can share and the benchmarking ability compared to best practices or corporate governance standards. Then, the second section consisted in an analysis of eleven case studies on board evaluation, based on as many interviews with secretaries general of BEL20 and BELMID companies. Besides, it would first be interesting to conduct this same analysis in the UK, where companies have to conduct an external board review, as well as conducting this same analysis in a few years to capture in changes of perception. The main result of this analysis was that firms usually acknowledged that external board reviews were superior to internal ones, mostly thanks to a greater professionalism and objectivity. However, most companies were not convinced that these benefits were worth the cost. More, some companies simply did not want the board evaluation process to be more effective, but rather conducted it just to comply. This lack of willingness to improve board performance is rather alarming given the responsibilities of today’s boards.