2.4 Impact of board structures on performance Flashcards
What does the UK Code state around the ratio of executive and non-executive directors?
The Board should include an appropriate combination of executive and non-executive directors (and in particular independent NEDs) such that no individual can dominate the board’s decision making.
What does the UK Code stipulate around the size of the board?
The board should be of sufficienct size that the requirements of the business can be met and that changes to the board’s composition and that of its committees can be managed without undue disruption, and should not be so large as to be unwieldy.
What factors might a board consider when determining the optimal number of directors?
- the size of the company
- the industry the company operates in
- the life stage of the organisation (e.g. growth or decline)
- the focus and requirements of the strategy
- the time, skill and knowledge requirements of the committees
- practical factors such as the ability to recruit and retain talent.
What factors might meant hat a board is too large.
- the skill of the chair over a larger group of directors
- the time, committment and ability of the chair to develop relationships with the directors
- the practicality of managing and securing consistent attendance
80% of FTSE 150 companies have which three committees, and 20% have which additional committee?
Audit, remuneration, nomination
Risk
What does the UK Code state on the division of responsibilities between the CEO and Chair?
There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company’s business. No one individual should have unfettered powers of decision.
Which country does not consider division of CEO/Chair responsibilities an important governance issue?
The US.
What does the UK Code stipulate about former CEOs?
A chief executive should not go on to become chairman of the same company. If exceptionally a board decised that a chief executive should become chairman, the board should consult major shareholders in advance and should set out its reasons to shareholders at the time of the appointent and in the next annual report.
How did Mark’s and Spencer evidence that a combined chair/CEO role can work as a temporary measure?
In 2008, M&S apointed appointed Sir Stuart Rose as Executive Chairman, commenting that the reason for this appointment was to avoid succession planning becoming an unwanted distraction. The group later appointed Marc Bolland as CEO to great success. This demonstrated that the joint approach can sometimes be effective.
Board tenure in the US (average 8.2 years) tends to be longer than un the UK (average 3.4 years). Why is this?
The US places more emphasis on directors being closer to management over being indepdenent.
What does the UK Code state on the tenure of the chair?
The chair should not remain in post beyond nine years from the date of their first appointment to the board.
AND
To facilitate effective succession planning….. this period can be extended for a limited time, particularly where the chair was an existing non-executive director.
A good board should include in its membership directors who represent their constituent s______________ because it is the right thing to do and helps improve board d______ m______.
stakeholders
decision making
Which three recent UK reviews promote board diversity?
2010 Davies Review
2016 Hampton-Alexander Review
2017 Parker Review
What are some proven benefits of increased board diversity?
- firms with gender diversity hold more board meetings
- firms with more volatility in stock returns have fewer women on boards
- firms with more gender diversity give rdirectors more pay-for-performance incentives
What does the UK Code state regarding awards of director remuneration?
Directors should exercise independent judgement and authorisation when authorising remuneration outcomes, taking account of company and individual performance, and wider circumstances.
