CSA Sentinel - The Institute Of Internal Auditors  


Second Quarter 2007 • Vol. 11 • No. 2
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According to Mike

CSA Is Moving Up the Corporate Ladder


On a recent rainy day, I found myself reading a shareholder information package for stock I own in a U.S. company. It was two inches thick and double-sided. But don't worry. This is not going to be an article about how unruly annual reports have become since the Enron days. What caught my eye was a statement regarding how this company's audit committee performs a self-assessment each year.

I was pleasantly surprised to read in a disclosure document that members of an audit committee are actually conducting self-assessments. However, I was shocked when I discovered the audit committee was the only part of the board to conduct these assessments. Neither the entire board nor any other committee — governance, nominating, compensation — disclosed any type of self-assessment. Why would only one quarter of the board be conducting a self assessment? Was this a business standard or an anomaly? This really piqued my interest in what other organizations are doing, so I decided to do some research. And while this research was in no way a statistically valid endeavor, I did learn some interesting facts about self-assessments in today's companies.


My research began by visiting The IIA's Global Audit Information Network (GAIN) site. This site offers information and results from surveys sent to thousands of members on a wide variety of topics, including internal audit processes, corporate governance, the U.S. Sarbanes-Oxley Act of 2002, and enterprise risk management, to name a few. For the research at hand, I found a survey conducted in 2004 that specifically addressed self-assessments being performed by the board and its committees.

Out of the online survey invitations sent out in 2004, 19 percent of the respondents stated that their board performed a formal written self-assessment with rankings. Another 8 percent had a formal written program but without rankings, and 7 percent said it was only based on discussion. Finally, 15 percent of respondents were developing a program and 32 percent did not have one. The remaining 18 percent weren't sure about their organization's self-assessment programs.

It would be interesting to see how those statistics have changed in three years, but I'm more interested in what is taking place in the more formal assessments today and, most importantly, the results. Thanks to the internet, by typing "board of directors self-assessment" into a search engine, I was presented with a plethora of corporate, private, government, and nonprofit sites stating that a board self-assessment is performed. I was particularly interested in three organizations and how they handle self-assessments.


IT service provider CGI Group impressed me not only by its detailed disclosure, but also by how much thought went into making the self-assessment a thorough examination. The self-assessment program was referred to 13 times in regards to how it evaluates various responsibilities, procedures, policies, and committees of the board. The following is an excerpt from the corporate governance committee's report:

"The corporate governance committee, chaired by the lead director, conducts an annual self-assessment of the effectiveness of the board as a whole, of the standing committees of the board, and of the contribution's of individual directors. It is also responsible for establishing the competencies, skills, and personal qualities it seeks in new board members with a view to adding value to the company, and directors are assessed against the contribution they are expected to make. This assessment is based on annual questionnaires to which directors respond.

"The board of directors reviews the assessment of its performance and the recommendations provided by the corporate governance committee annually with the objective of increasing the board's effectiveness in carrying out its responsibilities. The board takes appropriate action based on the results of the review process."

Here is an organization that has assigned a lead director the responsibility of overseeing an annual board and committeewide self-assessment. Moreover, it is a thorough examination that leads to proactive action so that the board, its committees, and members are constantly striving to implement better procedures and processes for continuing good corporate governance.


Another organization that caught my attention was the Luxembourg-based steel manufacturer, Arcelor. The following excerpt is from their corporate governance Web site.

"The self-assessment questionnaire covered seven principal themes:

  • The organization of board meetings and follow-up activities.
  • The board's composition.
  • The current director independence criteria.
  • The board's missions and the scope of its powers.
  • The remuneration of the board's members.
  • The audit committee's operating procedures.
  • The appointments and remuneration committee's operating procedures.

"Based on answers provided and observations made by board members, decisions were taken to make further improvements to the operating procedures of the board and its committees. It was also decided to increase the number of ordinary board meetings per year from six to seven."

Arcelor's board approved this self-assessment in 2004 and implemented it for the first time in 2005. What was of particular interest to me was that through the self-assessment, the board actually found areas where it could improve itself and its committees. To me, this was a vindication that self-assessment at any level of the organization can be a powerful tool in helping to improve operations and processes.


The third organization that interested me was Kingdom Oil, a not-for-profit religious organization. Kingdom Oil actually publishes a copy of their annual board self-assessment on their Web site. Although a small not-for-profit organization, it is interesting that many of the 12 questions the board members have to respond to can be applicable to any other organization — large or small, public or private, for profit or not.


Considering the way these three organizations handle self-assessments, there is really no excuse why any organization's board should not conduct an annual self-assessment.

Through my impromptu research on self-assessments in today's organizations, I learned many interesting things. Primarily, and most importantly, I learned that many organizations' boards are performing self-assessments. This is great news for auditors and stakeholders alike. Based on this discovery, I drew the following conclusions:

  1. Although some self-assessments are better than others, these assessments are helping to improve corporate governance.
  2. The entire board and its committees should complete annual self-assessments to generate a complete evaluation of all areas of corporate governance.
  3. Change is rapid, even at the upper levels, so it's imperative for organizations to continue revising self-assessments to make sure negative and positive outcomes of potential change are addressed.
  4. If the board of an organization is performing a self-assessment, there are no excuses for the rest of an organization to not do the same.
  5. There is a great opportunity for internal audit departments to step forward and help the board in its self-assessment evaluation by offering its expertise and knowledge in corporate governance, risk, control, and process improvement.

Michael Pidzamecky, CFE, CMA, is a private consultant who works with CSA and ERM processes. Pidzamecky has developed several self-assessment approaches, presented sessions for IIA courses and conferences, and written questions for The IIA's Certification in Control Self-assessment exam.
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