How to evaluate performance of board of directors/chairmen?
Hi all,
So, the thing is this.
I work as a student analyst in a VC fund, which I'm happy for.
However, I'm being asked to become part of a task force who has been given the assignment of developing a tool or model to evaluate the performance of the board of directors/chairmen in the respective companies of which the VC fund has invested in.
So, this is a bit of a pickle really - mostly because I find a lot of the parameters and factors to be quite qualitative and subjective instead of purely quantitative.
Of course one could look at the bottom line quantitative results of the firm, and take that into consideration when building a model/tool to evaluate some sort of KPI on the board of directors/chairmen.
However, I would really appreciate if anybody in here would come with suggestions and advice on how to create such a model and how to approach the challenge?
Which parameters would you take into consideration?
Which factors would you take into consideration?
How would you avoid making the model/tool too subjective?
Etc.
Any ideas or suggestions?
Any advice is welcome!
Thanks,
Well, start by establishing a timeline of operating results versus board member positions with corresponding turnover. That way you can at least visualize who was around during different periods in each company. Once you've established a rough timeline, start adding in major events such as acquisitions, product launches, etc. Essentially, whatever major changes happened. Again, make sure this is on your timeline so you can visualize who was there during those events.
That, to me, is your 'model'. Once you have that baseline information you can begin to create a framework for an analysis. If a board member comes on and suddenly pushes for a takeover that ends with substantially higher results going forward I would deem him to have a material impact. It's qualitative, but you can at least back it up with numbers. What you are doing is going to drive you crazy because of the good old correlation vs. causation. Thus, you have to be very critical of your assumptions and what you try and glean from the information. Take each business and break down what the key value drivers are for that specific company. Then look at the board members' skills that complement those value drivers and how those key drivers performed during their tenure.
Business is a massive gray area with few things be definitive except for the dollars that hit your bank account. This will be very subjective and frankly I think that one of the best things a board can do is stay out of the way and keep the company from ruining itself through awful decisions. But, then again, I don't do any analysis or anything regarding boards often. I would suggest to you that getting good at this type of thinking, outside the box stuff, will be very beneficial as most people can't handle ambiguity and a lack of a definitive answer.
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