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Hiring A Consultant To Perform A Governance Audit, Board Evaluation Or Other Governance Study

Kristina Veaco and Cheryl Sorokin of Veaco Group

The role of boards has become increasingly complex in recent years and investors, academics, legislators, regulators and the general public are increasingly concerned about how effectively boards and individual directors are performing. For both these reasons, many boards are utilizing the assistance of outside consultants to audit or review their governance structures and processes, as well as to evaluate the overall effectiveness of the board and of individual directors.

Boards have a wide variety of consultants to choose from in conducting a governance audit, board evaluation or other governance study because, as interest in corporate governance has grown, many individuals and firms have begun to build practices focusing on governance matters. Some consultants and consulting firms specialize exclusively in corporate governance matters. Others, such as accounting firms, executive search firms, business consultants, management consulting firms, and law firms, offer governance consulting as part of an array of other services.

Governance audits and board evaluations or effectiveness studies are usually conducted under the direction of the board or its Nominating and Governance Committee. The first step in the process is to determine the scope of the project to be undertaken. A governance audit, for example, may consist solely of a written report comparing practices at the company to those of other similar companies, or to a specific set of practices commonly recommended by governance practitioners, investors or academics. It might focus just on certain practices of particular interest to the board or Nominating and Governance Committee. Audits may include recommendations for changes and assistance with implementation. They may or may not include interviews with directors.

Board effectiveness reviews typically require extensive individual involvement of directors, soliciting their views on how the board and its committees function and what changes might improve effectiveness. Board effectiveness reviews may also include director self-assessments of their own individual performance or peer reviews in which directors assess the performance of others on the board. The process may involve written questionnaires as well as individual director interviews, and may also involve short- term or long-term assistance with implementation of changes, and often subsequent reviews of progress.

Once the basic scope of the project is determined, the process of identifying, screening and recommending firms to provide the services desired is often handled by the corporate secretary or equivalent executive level internal officer working closely with the board.

Determining which firm or type of firm to utilize can be a bit daunting and requires careful planning. Several websites, including Carl Hagberg’s www.carlhagberg.com, Broc Romanek’s www.thecorporatecounsel.net and the Society of Corporate Secretaries and Governance Professional’s www. governanceprofessionals.org all list firms that provide various types of governance services in their Service Provider sections, and Society members often comment on and recommend firms their boards have used via the Society’s members’ only “Huddle” networking service. These resources are good places to start when beginning the search for a governance consultant. Board members themselves may also have recommendations for consultants to consider based on their experience with consultants providing such services to other companies on whose boards they serve. Some organizations actually go through (or may be required to go through) a formal and broadly disseminated “request for services” process in order to select a consultant.

Once the field is narrowed down to one or a few possible choices, the following checklist can be helpful in determining which individual or firm best suits the needs of the particular organization for the project in question.

Governance Consultant Checklist:

  • What type of governance study does the board want and what is the scope of the project under consideration?
    E.g., audit of current practices, analysis of current board effectiveness, review of committee practices and effectiveness, director self-evaluation, director peer evaluation, evaluation of chair, evaluation of committee chairs, evaluation of the board’s relationship with the CEO, implementation of recommendations, focus on particular substantive areas, help with a known problem such as disaffected directors or confusion over the board’s role, education of the board on governance trends.
  • What array of services does the firm or consultant under consideration provide in the governance area?
  • Is board governance a primary area of expertise and focus, or one area among many others?
  • Is there a particular focus to the fi s or consultant’s approach?
    E.g., overall governance effectiveness, fiduciary/legal responsibility, compliance, risk management, organizational development, executive compensation, interpersonal skill development or relationships
  • How long has the firm or consultant been engaged in governance consulting?
  • How did the consultant acquire his/her expertise for the particular service?
  • What is the firm’s or consultant’s approach to conducting governance studies?
    E.g., written questionnaires, online or paper process for delivery and responses, oral interviews, surveys or research comparisons with peers or trends, de novo study, building on the company’s past efforts, written report of findings, written recommendations, oral presentation of findings and recommendations.
  • Is the firm or consultant willing to tailor the approach to meet the company’s needs or expectations?
  • Is the scope of the work desired a good fit with the experience and expertise of the consultant or firm?
  • What is the experience of firm or consultant with different types of boards?
    E.g., public, private, nonprofit, government entity, large organization with substantial staff, small organization with few staff
  • What is the background and experience of the person or persons who actually will be doing the work?
    E.g., legal training, management or human resources consulting, risk management or audit expertise
  • What has been the actual boardroom experience of the firm or consultant?
    E.g., involved as corporate secretary, CEO or business executive, director, consultant to the board or a committee, general counsel or attorney
  • What experience has the firm or consultant had in actually implementing governance processes and practices?
  • What is the firm’s or consultant’s reputation in the corporate governance arena (including in the case of a firm, the individuals it uses to provide governance consulting services)?
  • Is the consultant or firm known to members of the board?
    E.g., by general reputation, by work done for other boards on which directors serve, as a result of other consulting services the fi or consultant is providing or has provided to the company
  • What other companies have been clients of the firm or consultant and what was the nature and scope of the services provided to those companies?
  • What is the quality of references provided by the consultant or firm?
  • Is the personality of the consultant or the individuals who will actually provide the service a good fit with the board and/or the CEO?
  • How long will the project take?
  • What will management’s role be?
    E.g., will the CEO and other top executives working with the board be interviewed; will results of the work be reported to the management team separately; what role will management have in implementation of recommendations; who in management will assist in scheduling and in responding to both director and consultant questions/needs during the course of the project
  • What will be expected of directors and how much of their time will be needed?
    E.g., will the board and committee chairs be part of the project design process, are all directors willing to participate, will in-person or telephonic interviews be part of the process, how much time will it take for directors to fill out questionnaires and/or be interviewed
  • What is the desired process for reporting results?
    E.g., written or oral presentation to the board chair, to the Nominating and Governance Committee chair, to the Nominating and Governance Committee, to the full board, to the CEO, to each committee evaluated, to the management team, and/or, for director peer reviews, to directors individually
  • What steps are taken to protect the confidentiality of individual director responses?
  • Are the proposed fees reasonable given the scope of the project?

This checklist can be a useful starting point in determining which firm or consultant is the right governance consultant for the particular governance project both in terms of expertise and ability to relate well to the board. Of course, it is well to remember that, depending on the particular entity and project, there may be other considerations beyond those listed above and some of those listed may not be applicable. Additionally, some factors listed will be more important for certain types of projects than others. For example, in our experience, “personality fit” or the ability of a consultant to relate well to both the board and the CEO is particularly important in governance projects since it is the board’s own processes and conduct that are at the heart of any governance project. The board must have confidence in and rapport with the consultant chosen. This is particularly true when conducting a board effectiveness study as board members have to be willing to be open and candid with the consultant for the results to be meaningful. The importance of “chemistry” should never be overlooked or underestimated.

You can see more about Veaco Group at www. veacogroup.com.

Contact us at 415-731-3111 or contact Kristina Veaco at kveaco@veacogroup.com.