Determinants of the quality of external board evaluation in the UK

Abstract

Purpose This study aims to examine the influence of the following on the quality of externally facilitated board evaluation, namely, the timing of adoption of external board evaluation, type of evaluators and the independence of external facilitators. Design/methodology/approach The statements on board evaluation in annual reports of a sample of FTSE 350 companies were content analysed to measure the quality of externally facilitated board evaluation. This paper then used descriptive analysis and inferential statistics to demonstrate the possible association between the timing of adoption, as well as the type and independence of external facilitators and the quality of externally facilitated board evaluation. Findings Results reveal some effects of the timing of adoption, as well as the type and independence of external facilitators on the quality of externally facilitated board evaluation. Practical implications Shareholders should be aware of the timing of adoption, as well as consider the types and independence of external facilitators, given their influence on the quality of externally facilitated board evaluation. Regulatory authorities should provide more specific guidance on what types of professional organisations can be engaged as external facilitators and on the implementation of externally facilitated board evaluation, to promote its quality. Originality/value Several studies have provided theoretical accounts on how board evaluation should be conducted to ensure its effectiveness. However, there is a dearth of empirical literature, which examines the quality of externally facilitated board evaluation. This study develops a quality measure for externally facilitated board evaluation and shows the effect of the timing of adoption, types and independence of external facilitators on its quality. The study forges ahead institutional theorising of external board evaluation.