8 - Board effectiveness Flashcards
2018 FRC guidance on BE - regularity of BMs, what to search
‘Regular’
‘Meeting regularly is essential for the board to discharge its duties effectively and to allow adequate time for consideration of all the issues falling within its remit’
6 factors limiting effective decision making
- Dominant personality
- ‘Group think’ through lack of diversity
- Excess or insufficient focus on risk
- Failure to listen to or act upon concerns
- Complacent or intransigent attitudes
- Inadequate info and poor board papers
Look at FRC BE Guidance - where is list of factors limiting effective decision making?
Paragraph 30
Average number of BMs held by top 150 FTSE companies over a year
Around 8
FRC guidance on BE - which paragraphs discuss decision-making process?
29-32
Role of CoSec in BMs (5)
- Register attendance
- Determine quorum
- Maintaining record of proceedings in order to produce minutes and action log
- Advising chair on procedural matters
- Advise on governance issues
Role of NED in BMs (5)
- Attend regularly and be well prepared
- Act objectively
- Avoid dominating discussion
- Recognise collective decisions
- Foster constructive challenge
4 points re. board papers
Sent out to directors at least a week before the BM
Format is clear and consistent
Adequate information for directors to have sufficient knowledge on the items to be covered
Chair should be satisfied that board papers have been read before the meeting
What is the purpose of bespoke software products such as Diligent Boards and BoardEffect?
Facilitate production, distribution and storage of board papers
- May include voting and messaging features
3 benefits to using board portal software
- Less time spent by CoSec producing, collating and circulating papers
- Better security with information stored on the cloud
- More easily refer to board packs from previous meetings (great for NEDs)
Corporate culture - what and why
A company’s values, attitudes and behaviours and the way it conducts its business.
Vital to the creation and protection of long-term value.
Look at Wates - which Principles relate to company purpose?
Principles 1 & 5
What should a company do in addition to having a code of ethics, to build an ethical culture?
Embed the code within the organisation’s behaviours and practices
CoSec’s role in assisting board with establishing and maintaining corporate culture (6)
- Suggesting that discussions about corporate culture are on board’s agenda
- Suggesting culture indicators are selected based on expectations of key stakeholders
- Developing dashboard for culture indicators that should be reviewed from time to time
- Ensuring info used to monitor performance of indicators is drawn from variety of sources
- Organising site visits so that board can meet employees
- Assisting in developing reporting to stakeholders on the culture
7 culture indicators used by boards
- Whistleblowing data
- Results of employee surveys
- Diversity
- Regulatory infringements
- H&S records
- Customer satisfaction data
- Code of ethics sign off rate
For what reason should the CoSec have a particularly important role re. unethical behaviour
As they are considered the ‘conscience of the company’
Companies should have both ethical values and principles. Ethical principles are statements that (4)
Are statements that:
- Provide guidance and direction for behaviour
- Relate to issues such as fairness, equity and justice
- Are universal
- Set boundaries that should be respected
Companies should have both ethical values and principles. Ethical values: (4)
- Shape context in which principles are implemented
- Guide choices made by the board, management and employees
- Frame norms of behaviour to be applied to daily decisions
- Are incorporated into organisational culture
When drafting company values and codes of ethics, why is it so important that these are not just taken from another company or a template?
Every org is different. Unless specified to the org, employees will struggle to associate with or even remember them
8 stages to implementation of code of ethics
- Consult with employees on draft code
- Board finalise and approve code
- Code is piloted
- Collect further input from employees
- Suggest amendments
- Roll out code with HR
- Monitor compliance with code
- Review code from time to time (but do not make constant changes)
Why was directors’ access to independent professional advice removed from Code in 2018?
As compliance with the requirement was at such a high level
Where can FRC guidance on Independent Professional Advice for directors be found
FRC Guidance on BE (pars 83)
Where in FRC guidance is there an implication that board committees should have access to independent advice?
FRC Guidance on BE (para 83) - ‘provided with sufficient resources to undertake duties’
FRC Guidance on BE’s - which paras relate to board evaluations
106-110
What do chairs of non-FTSE 350 companies need to do to comply with Provision 21? - ‘The chair should consider having a regular externally facilitated board evaluation. In FTSE 350 companies this should happen at least every three years’
Think about having one
FRC Guidance on BE’s - which paras relate to external board evaluations?
114-116
5 signs of an effective external board eval
- Recommendations and meaningful and forward-looking
- Clear recommendations and actions
- Good practice observed on other boards is shared
- Feedback provided to each individual member
- Robust analysis of quality of info at board’s disposal
2 reasons why internal board evals are often less useful than external board evals
- Those involved may not be able or willing to identify problems
- Already known issues may be avoided
2 benefits of internal board evals over external
- Cheaper
- Quicker to organise
How are internal board evals usually carried out?
Self-assessment questionnaires
What will external board evaluator do, that internal probably won’t? (as part of process)
Interview directors
4 advantages to hiring external board evaluator
- More experience as evaluator
- More knowledge of good practice from other companies
- Directors more likely to be fully open with an external, neutral evaluator
- More time as not carrying out ordinary role at same time (as cosec would be)
3rd option for board eval (not internal or external)
Hybrid - results of questionnaires sent to external evaluator to analyse
5 factors to consider when selecting board evaluator (PRIME)
- Price
- Reviews
- Independence
- Method
- Experience
Who would usually lead internal board evaluation?
CoSec
What will be the outcome of a successful board eval? (3)
Results presented to board as set of recommendations and actions, with timeline for completion.
Board responds appropriately by taking recommendations on board and implementing accordingly.
(Provision 23) Nom Com’s report discloses details of board evaluation
Where can a list of areas that may be evaluated during board evals be found? in FRC Guidance on BE
Para 113
Where can best practice on induction and professional development be found? in FRC Guidance on BE
Paras 61, 75 & 81
4 aims on induction according to ISCA guidance note
- Build understanding of nature of company, business and markets
- Build a link with company’s people
- Build understanding of co’s main relationships
- Ensure understanding of role of director
ISCA guidance note on board inductions - CoSec should… (5) (how is it ensured that induction programme is as effective as possible)
- Consult new director before devising programme
- Prioritise and schedule various elements over reasonable period to avoid overloading
- Vary delivery of information (from mass reading) by organising site visits, meetings with stakeholders, consider external training courses
- Plan with reference to training and development programme
- Review induction programme with director mid-way through and at conclusion of process
6 factors to consider when designing induction programme, why?
- Nature of business (specific knowledge required?)
- Financial position/strategy
- Business locations (re. site visits)
- Type of company (Code/Wates, etc.)
- Exec or NED (exec needs employee induction too)
- Previous experience as directors (briefing on role and duties required?)
5 elements to include in an induction programme
- Company documents (annual accounts, articles)
- Site visits (to understand business and meet employees)
- Explanation of role of director and legal framework (duties, Code, etc.)
- Shareholders - briefed on and meet significant shareholders
- Presentation from senior managers - on financial position, strategy, etc.
In what process will specific needs for professional development of directors be identified?
Board’s evaluation
What is often considered an essential part of an execs professional development?
Taking up an outside position as a NED
Benefit to exec to serving as NED on other board
Experience first-hand what it is like to be on other side of divide, allowing them to better understand concerns of NEDs
Why might exec serving as NED on another board not be so beneficial?
They may moderate their behaviour to match that of how they would like a NED on their own board to act
Who is responsible for ensuring effective induction programme takes place?
Chair (CoSec will assist)
3 stages of establishing great company culture
- Establish purpose and values, probably through the development of a Code of Ethics
- Embedding culture in operations and policies
- Monitoring company culture
What is the purpose of a Code of Ethics?
Set out standards of ethical behaviour that company expects of Board and workforce
4 benefits of having a Code of Ethics
- Ensures company values have been agreed by the Board
- Allows values to be easily communicated to workforce
- Encourages staff to speak out against behaviours not in line with code
- Allows reward of good behaviour with benefits and rewards
3 methods by which company culture can be monitored
- Use staff surveys etc. to check employees’ views
- Include corporate culture as one of matters discussed as part of stakeholder engagement
- Have culture and values be standing items at Board meetings to ensure regular consideration
5 methods by which company culture can be embedded into organisation
- Consider values when establishing operational policies and practices
- Link company culture to remuneration (consider taking behaviour into account for bonuses, promotions, etc.
- Culture of openness and accountability, and formal anonymous whistleblowing policy
- Setting the tone from the top
- Including values in employee induction and training
5 ways CoSec can ensure Board Pack (papers) support effectiveness of meeting
- Distributed 7 days in advance
- Not too long, no irrelevant material
- All info needed to come to a decision is included
- Co-ordinating collation storage and distribution
- Ensuring adherence to style and format consistency
7 considerations that may improve effectiveness of BMs
- Number of board meetings (too much being discussed each time?)
- Governance issues more generally
- Establishing board committees for specific functions
- Appointing more NEDs
- Review of board agendas
- Review of board papers
- Improving dynamics
4 characteristics of strong ‘board agendas’
- Forward meeting plans
- Inclusion of regular items to be covered across each FY or calendar year
- Prioritisation of key matters at the start of BMs
- Provisional timeline for board meetings to be followed by chair
4 factors that ensure whistleblowing policy has desired effect
- Workforce know procedures for reporting a matter as well as how investigations are conducted and followed up
- Policy and procedures should be widely circulated and become part of induction and training
- Procedure and policy should be regularly monitored and reviewed
- Culture of trust and openness should be present for policy to have desired effect
