Assessing Board Performance: Best Practices for Community Banks

Behind every community bank or credit union is a hardworking board. While board members may put many hours of time and effort into their board duties, it’s fair to ask whether the board is achieving results that help fulfill its mission.

Community banking organizations can only get an accurate view of board performance through annual board evaluations that incorporate best practices for board assessments, with attention to individual performances and the board as a whole.

While in the throes of managing a financial services organization, it’s easy for boards to make excuses for not doing an annual self-evaluation. The reasons boards fail to evaluate themselves usually come down to two things: not knowing how to do the evaluations, or not having enough time.

If board directors with previous board experience haven’t done self-evaluations previously, they may not be motivated to do them on the next board. They may have served on nonprofit boards that had different expectations. Some experienced board members may have served on boards that didn’t necessarily focus on good governance.

The National Council of Nonprofits points out that more nonprofit boards would benefit from a self-assessment process every year. The best way to do that is to plan an annual self-assessment and follow through with it.

How often should your board perform board assessments? Due to the unique characteristics of each nonprofit, there is no simple, straightforward answer to that question. BoardSource recommends performing board assessments every year. Others say every two to three years; certainly for very large organizations or those experiencing strong growth, once a year may be more appropriate.

Getting Started With a Board Assessment

Every board has to begin the process of doing board assessments somewhere. Making them a habit is naturally more difficult if they haven’t been a long-standing protocol, but it’s not impossible.

To begin with, boards should have a general discussion about their role. This will ensure that the entire board is on the same page and that they share the same expectations. To prevent the issue from continuously being overlooked, place the issue of board self-evaluation on your next agenda.

A few primary questions that boards need to discuss at the time of board self-evaluations (and all year) are:

1. Why does the nonprofit exist?
2. How can the board advance the organization’s mission?

In addition to these questions, best practices for nonprofit board assessments recommend that board directors should reflect on their roles as board directors.

Be aware that it may take time to get full buy-in from the entire board for conducting board self-evaluations. Some board members may not fully understand the importance of board self-evaluations concerning good governance practices; others may needlessly feel threatened by the process.

Ultimately, community bank boards need to assess whether the expectations they have for themselves match their performance and whether they’re meeting the needs of the organization.

Board Self-Assessments Ensure Strong Board Leadership

Communities depend on community banks and credit unions to provide them with services they can’t get from the government or on their own. That’s a fundamental reason for the board to instill good governance principles and fully commit to their role.

Nonprofit organizations are legally required to state the purpose of their existence on the IRS Form 990. The government mandates that boards effectively work toward the purpose they stated in their founding documents. Without annual board self-assessments, community bank boards risk straying too far away from their original mission and intent.

Beyond ensuring that your organization is providing its intended service, assessing board performance using best practices also helps the board identify issues that need clarification.

For organizations with volunteer boards, the future is just as important as the present. Board recruitment has to be an ongoing activity to ensure that the organization maintains strong leadership in the coming years. Annual board performance assessments should include an assessment of the board’s skills so they can determine if any current members might be qualified for a consecutive term. When it comes to board recruitment, your board should always be forward-thinking and consider the needs over the next 3-5 years.

What Are Best Practices for Assessing Board Performance?

While many credit unions may fail to assess their boards on a yearly basis, plenty make it an annual practice. If board assessments are new for your organization, it makes sense to spend the time looking at other banks and credit unions that have been doing self-assessments over the long term. There is much to learn from seasoned organizations, including how to use templates for surveys, how to manage the assessment process, and what issues to evaluate.

Generally, best practices for assessing board performance require three things:

1. Doing it annually
2. Adequate planning
3. Establishing a process

Once the board has had the initial conversation about their purpose and expectations for assessing board performance, they need to establish a process. The answers to the following questions will give you an excellent place to start:

• What tools will you use? Here, surveys, online questionnaires, and templates are useful. Your board management solution should offer these to assist you.
• Who will lead the board assessment? Decide who will lead — the board chair, independent facilitator, or a committee?
• Will the assessment tools be anonymous? Or will the board be transparent about the answers?
• What areas will the board evaluate? Decide on these to ensure the scope is defined.
• Will you evaluate individuals, the entire board, or both?

While newer board members may not have enough experience to contribute significantly to their answers for a board assessment, it’s important not to make exceptions for including them.

Best practices for assessing board performance also include using the results to aid strategic planning. This is an important point that shouldn’t be overlooked.

Overall, boards should enter the board assessment process with a narrow focus on the nonprofit’s purpose.

Tools for Community Bank Board Self-Evaluation

What tools will your board need to gather or implement before starting your self-evaluation? Put thought into which tools will help your board yield the most meaningful results. After the first self-assessment, you should have a better idea of whether to keep the same tools, add new ones, or eliminate a few.

A checklist is handy for making sure your board agrees with the topics you want to assess.

Your board can learn a lot from reviewing sample self-assessments; they help you organize your questionnaires and fine-tune them according to your needs so you don’t miss a beat.

A self-assessment template gives you a fill-in-the-blank outline that you can use every year to add and modify your nonprofit board assessment questions. Your questionnaires will help your board gauge your progress.

The National Council of Nonprofits have created a nice Tip Sheet For Candid Conversations About Board Governance which outlines specific areas your board can strive to improve on and correlates practice tips. The tip sheet should make for lively board discussions.

Finally, leverage a board management solution that you can use to store your template, checklist, and sample self-assessments so they’re accessible year after year.

Developing a Board Assessment Checklist

The Standards for Excellence Institute have a downloadable Self-Assessment Checklist. One approach is to break down your checklist by assessing the board, board members, and structure.

For example, checks for board responsibilities might include the following:

• Understanding board roles and responsibilities
• Using data to measure progress
• Reviewing reports
• Monitoring finances
• Strategizing, setting short and long-term goals
• Reviewing executive director compensation
• Reviewing the audit report and Form 990
• Allowing all voices to be heard in a collegial manner

Checks for board members might include:

• Being involved in fundraising
• Being a good steward of the nonprofit’s finances
• Effectively communicating the nonprofit’s mission
• Making a commitment to training, education, mentorship
• Monitoring levels of engagement
• Making personal contributions

Checks for evaluating the structure might include:

• Understanding the board’s structure and making necessary changes
• Evaluating the effectiveness of committees and workgroups
• Monitoring board meeting frequency and length
• Developing a diverse, inclusive board
• Establishing an emergency succession plan and building leadership capacity
• Establishing and reviewing core policies (conflict of interest, whistleblower, document retention, etc.)

Assessing Board Performance: What Specific Areas Should Boards Include?

There are no hard and fast rules about the specific areas that volunteer boards should assess. Essentially, any areas the board deems appropriate are acceptable for a board assessment. Here’s a good list to get you started:

• Board roles and responsibilities
• Recruiting, orienting, training, and equipping board members
• Board committees
• Board meetings
• Board policies
• Oversight of legal matters
• Strategic planning
• Personnel management
• Oversight of financial matters
• Fundraising activities
• Board participation and morale

Future-proofing Your Community Bank Board

An annual board self-assessment exercise provides many benefits for community bank boards. It may help the board prevent problems that could lead to liability issues for the board and individual members. The results of your annual assessment will also highlight some topics for future board discussion and consideration.

If time is truly an issue, your board may opt to conduct individual board member assessments one year and alternate with complete board assessments the following year. Doing these assessments will become easier and less time-consuming each time. The most important thing is to commit to doing them and follow through.

If you would like to learn more about how BoardEffect can support your board evaluations, we’d love to speak with you! Request a demo and let us share how we help more than 5,000 boards in 48 countries.

BoardEffect, a Diligent solution, leads in providing innovative boardroom technology to nonprofit organizations. Serving 14,000 mission-driven organizations, Diligent empowers boards with tools to drive positive change. Our secure board management software streamlines operations, enhances governance practices, and enables confident decision-making. With BoardEffect, mission-driven organizations unlock potential, accelerate mission delivery, and make lasting impact in their communities.