Chapter 2: Effective Board Practices and Codes Flashcards
Which companies are required to undertake board evaluation?
All listed companies
Which companies must undertake external board evaluations and how often?
FTSE 350 companies, at least once every 3 years
What factors are to be considered in structuring the board (pg. 50)
• NEDs / Independence
• Plc vs Ltd vs Listed – compliance with CGC:
o COO / Chair shouldn’t hold the same position
(Provision 9)
o Composition/ ratio of NEDs vs Execs on the board
• Gender
• Skills / Experience / Competences
What does CGC recommend in regard to Board composition of listed companies?
• Both executives and NEDs (Principle G)
• FTSE350: Half of the board NEDs (excluding
Chair) (Prov 11)
• Outside FTSE350: at least 2 NEDs
• Majority independent NEDs
• Senior Independent Director (to evaluate the Chair
and intervene if conflict with the board) (Prov 12)
• Combination of skills/experience/knowledge
• Committees for listed companies (the 4 standing
committees):
1. Remuneration
2. Nomination (i.e. succession)
3. Audit
4. Disclosure (to assist stock exchange rule
compliance) (ch. 8 pg 208)
• Risk committee?
What are the benefits of board evaluation?
• Succession planning
• Find gaps in knowledge of the Directors
• Diversity
• Build confidence of shareholders
• Ensure effectiveness / capable of undertaking the
role
• Compliance with CGC / Listing Rules
• Board embodies the desired culture
• Transparency / accountability to stakeholders
• Identify problems before they are too big
• Meeting objectives of strategy
• Improve board dynamics / collective performance
as a Board
• Improve performance of the board
• Improve director satisfaction
• Identify areas for improvement
Who should oversee the board evaluation?
The Chair with support of the CoSec
The Senior Independent Director is responsible for the evaluation of the Chair
What ‘appropriate and relevant systems’ should be monitored via an evaluation process?
- Financial performance
- Internal control
- Risk management
- Managing related parties
- Managing controlling shareholders
- Whistleblowing process
What does Provision 23 of CGC require for listed companies in regard to Board Evaluation?
In the Annual Report:
• Report findings and recommendations of
evaluations
• Provide details of implementation
• In following years, an evaluation of the changes
What are the advantages of an internal board evaluation?
Costless
Familiarity with company’s objectives
Directors more open
What are the disadvantages of an internal board evaluation?
Group think Less skilled in evaluation Less able to give time to task Evaluator would be more junior than directors Outcome might be skewed Less credible
What are the advantages of an external board evaluation?
Objective Fresh pair of eyes Skilled evaluator Time to commit More credible / respected both by Directors and stakeholders
What are the disadvantages of an external board evaluation?
Less familiar with company’s objectives
Costs more
Directors are Unwilling to speak to external evaluators
What should the CHECKLIST for a director induction for a listed company contain?
(Anagram: RT dB pro)
1. Running of Business (risk profile, policies,
financial/treasury, insurance, litigation)
2. Third party relationships (investors, s/h, advisers,
key customers/ suppliers/ stakeholders)
3. Director Role (duties, share dealing policies, related
parties, advisors, insurance, restrictions)
4. Background to Business (history, structure,
customers, market, annual report)
5. Practicalities (contacts, support, expenses)
6. Rules, Regulation, Guidance (unitary board, articles,
LR, DTR, SEC/LSE rules, CGC, FRC)
7. Operation (composition/committees,
meetings/minutes, procedures/inside
info/evaluation)
What types of CPD would a director be expected to undertake?
Training / attend briefings on:
• New legislation
• New regulatory requirements
• Technology
What are the general areas of matters reserved for the board?
WARTIEST
Whistleblowing Authority Risk Tenure Independence Expenses Share dealing Terms of reference
