Board Effectiveness (+ Culture and BE) Flashcards
What are 5 factors that can limit effective decision-making according to paragraph 30 FRC Guidance on Board Effectiveness?
para 30 = factors that can limit effective decision making:
1. a dominant personality
- insufficient diversity on the board
- insufficient attention to risk;
- poor quality papers
- Inability to challenge effectively
Name 3 things the chair does in the decision-making process at board meetings.
Name 3 things the ED/NEDs do.
Name 3 things the cosec does.
Chair:
1. Maintains control of proceedings, does not dominate
2. Stimulates debate, encourages all to contribute
3. Encourages constructive discussions
ED/NEDs:
1. Attends regularly, and prepares so as to be an effective decision-maker
2. Acts objectively, and is open to other perspectives
3. Fosters constructive challenge
Cosec:
1. Registers attendance
2. Advises on governance issues
3. Maintains a record of the proceedings to produce the minutes and an action log
According to Bernic McCarthy: About Learning (1996), what means a meeting is successful? (5)
- There is a flexible agenda
- Honesty is encouraged
- Information is based on facts
- Pros and cons are weighed
- Closure is achieved
What does Principle F UK CG Code say the chair should do in relation to the supply of information?
What does paragraph 73 FRC Guidance on Board Effectiveness say the CEO should do in relation to the supply of information?
What does paragraph 77 FRC Guidance on Board Effectiveness say the NEDs should do in relation to the supply of information?
What does paragraph 81 FRC Guidance on Board Effectiveness say the cosec should do in relation to the supply of information?
- Principle F = the chair should ensure that directors receive accurate, timely, and clear information
- CEO = para 73 = responsible for ensuring management fulfils its obligation to provide the board with accurate, timely and clear information
- NEDs =para 77 = should insist on receiving high-quality information
- Cosec = para 81 = Under direction of chair, should ensure good information flows within the board and its committees and between senior management and NEDs
ICSA published practical guidance: ‘Effective Board Reporting’ (2018)
What is the company secretary’s role in preparing board packs? (4)
- co-ordinating the preparation of the board pack
- supporting those writing and presenting board papers, e.g. checking that the papers are understandable to a non-specialist
- ensuring that papers are submitted on time
- reviewing with the chair and other board members whether the board papers met their needs
Name 2 board portal software that facilitates the production, distribution, and storage of board papers.
What are 5 typical features / advantages of Board Portal Software?
Diligent Boards and BoardEffect
- secure tools to facilitate the distribution and use of electronic agenda papers and board packs = reduced time producing, collating, and distributing
- archiving facilities that enable directors to refer back to the previous papers and minutes
- voting tools;
- tools to facilitate the circulation and approval of minutes, and
- secure messaging features.
What is a corporate culture?
Why is a healthy corporate culture important?
What does Principle B UK CG Code say regarding corporate culture?
Which paragraph of the FRC Guidance on Board Effectiveness support this?
What does paragraph 19 FRC Guidance on Board Effectiveness say regarding how directors can reinforce this?
= company’s behaviours, the way it conducts its business, and espouses its values
Important = valuable asset, a source of competitive advantages, vital to creation and protection of long-term value
- Principle B = The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture
- para 11
- para 19 = directors can reinforce values through their own behaviour and decisions = tone from the top
How is a corporate culture set? (9 steps)
(Can also be how to implement business ethics)
- Develop ethical values
- Reflect values in a code of conduct/ethics
- Ensure values are taken into developing processes and procedures
- Publicise code (around office and training)
- Integrate values into operations
- Ensure employee reward systems promote behaviour in line with code of ethics (Principle P)
- Ensure openness and honesty are reflected at every level (employees feel they can raise unethical practices)
- Set tone from the top
- Ensure code is reviewed from time to time (keep up with societal norms)
How is a corporate culture monitored? (5)
(Code provision and FRC Guidance)
- Provision 2 = The board should assess and monitor culture. Where it is not satisfied that policy, practices or behaviour are aligned with the company’s purpose, values and strategy, it should seek assurance that management has taken corrective action.
- FRC Guidance on Board Effectiveness (para 21) = suggests that the first step in assessing and monitoring culture for alignment with purpose and values is to establish a benchmark against which future monitoring can take place
- hosting town halls
- becoming a customer/mystery shopper;
- talking to external stakeholders;
- site visits and meetings with junior managers without their bosses; and
- reviewing and following up customer complaints
What is business ethics?
Which 2 UK CG Code Principle relate to business ethics?
What is a code of ethics and its purpose?
What 4 things does a code of ethics usually contain?
What are 4 benefits of a code of ethics?
The Institute of Business Ethics (IBE) defines ethics as = the application of ethical values to business behaviour (goes beyond the legal requirements for a company)
- Principle B = The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture
- Principle E = The board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success. The workforce should be able to raise any matters of concern
Code of ethics = a document or policy setting out the company’s ethical values and standards
Purpose = set out the standards of ethical behaviour that the company expects of its Board and workforce
Code of ethics:
1. Company values
2. Ethical principles
3. Ethical standards towards employees. customers, suppliers etc.
4. Implementation of code = training
Benefits:
1. Ensures that the company’s values are agreed by the Board
- Allows the company’s values to be communicated to all of the workforce
- Can design staff rewards for workforce behaviour that is in line with the values
- Can allow staff to speak out against behaviour which is out of line with the Code
What is the role of the cosec in building an ethical culture? (3)
- Speaking out against bad governance and unethical behaviour (the conscience of the company)
- Assist board developing a code of ethics (not copied = every co. has different ethical issues)
- Ensure compliance with the value and code of ethics is monitored and breaches are reported to the board
What does paragraph 83 FRC Guidance on Board Effectiveness say regarding independent professional advice for directors?
How might the cosec be involved in the procedures to enable the directors to obtain independent professional advice? (5)
What does the CGI Guidance Note “Model Board Resolution on Independent Professional Advice” suggest about the process? (2)
para. 83 = CS’s responsibility to ensure directors, especially NEDs, have access to independent professional advice at the company’s expense
- Cosec proposes board should adopt a procedure for directors seeking independent advice to follow = board resolution or part of board process manual
- If procedure sets certain conditions or imposes financial limits, pre-approval may be required from Chair or SID
- Cosec will record that an application has been made and whether approval given
- Cosec will report this to the board
- Cosec will authorise payment of invoices to the independent advisors
1.director should inform chair or SID on their intention to seek independent professional advice
2. Provide name(s) of advisor and a brief summary of the subject matter
What does Provision 21 UK CG Code require boards to do regarding performance evaluations?
What does Provision 12 UK CG Code say about NEDs responsibilities?
What does Principle L UK CG Code say about the board’s and individuals’ evaluations? (2)
What does Provision 22 UK CG Code say the chair is required to do?
What does Provision 23 UK CG Code require the NC report to state that’s specific to board evaluations? (4)
Which paragraphs (5) in the FRC Guidance on Board Effectiveness relate to performance evaluations?
- Provision 21 = requires boards to undertake a formal and rigorous annual evaluation of the performance of the board, its committees, the chair, and individual directors - chair consider an external evaluation (FTSE 350 companies = every 3 years)
- Provision 12 = provides that the NEDs, led by SID, should be responsible for performance evaluation of the chair and should meet without the chair present at least annually
- Principle L:
1. the annual evaluation of the board should consider its composition, diversity, and how effectively members work together to achieve objectives; and
2. each individual’s evaluation should demonstrate whether they continue to contribute effectively - Provision 22 = the chair is expected to act on the results of the performance evaluation by recognising the strengths and addressing the weaknesses of the board
- Provision 23 = requires the nomination committee report to state:
1. how the board evaluation has been conducted;
2. the nature and extent of an external evaluator’s contact with the board and individual directors;
3. the outcomes and actions taken; and
4. how the evaluation has or will influence board composition
para 106 - 110 = makes following suggestions:
- Evaluation process should aim to be objective and rigorous.
- Chair has overall responsibility for the process
- Chair should consider ways to obtain feedback from the workforce and other stakeholders – e.g., the auditors – on the performance of the board and individual directors.
- Board evaluations should inform and influence succession planning.
Which paragraph in the FRC Guidance on Board Effectiveness relates to what should be evaluated during the annual board evaluation?
Paragraph 113 = areas which may be evaluated:
1. the mix of skills, experience and knowledge on the board
2. succession and development plans;
3. Shareholder and stakeholder engagement
4. quality of papers and presentations to the board;
5. processes for identifying and reviewing risks
What does paragraph 61 FRC Guidance on Board Effectiveness say about the chair’s role in relation to inductions?
Paragraph 81 = The cosec’s role in relation to this?
Paragraph 75 = The NEDs responsibility in relation to this?
- para 61 = the chair should ensure that all directors receive a full, formal, and tailored induction on joining the board
- para 81 = CS must facilitate and arrange induction and training under direction of the chair
- para 75 = NEDs should devote time to a comprehensive, formal, and tailored induction that should extend beyond the boardroom
