Chapter 3 - EFFECTIVE BOARD PRACTICES

Question 1

1. Which companies are required to undertake board evaluation?

Answer 1

All listed companies

Question 2

2. Which companies must carry out external facilitated board evaluation and how often?

Answer 2

FTSE 350 companies - at least once every 3 years

Question 3

3. Who should evaluate the performance of the company chair?

Answer 3

The NEDs led by the senior independent director

Question 4

1. When should directors receive induction training?

Answer 4

Shortly after appointment

Question 5

2. Is it necessary for experienced directors to receive induction training?

Answer 5

Yes, as all companies have different processes

Question 6

3. Is it better for directors to receive training all in one session or spread out during the year?

Answer 6

It is better to drip feed the updates rather than overload with, say, one annual update session

Question 7

1. Why should board committees have written terms of reference?

Answer 7

To ensure there are clear objectives, authority and parameters for the matters delegated to them

Question 8

2. Who is responsible for notifying the FCA where a PDMR deals in the company’s shares?

Answer 8

The PDMR but often delegated to the company secretary

Question 9

3. Can an employer legally sack a whistle-blower for blowing the whistle?

Answer 9

No

Question 10

What areas are assessed in Board evaluations to ensure they are beneficial?

Answer 10

Good practice to examine and improve Board:

Structure

Composition

Processes

Question 11

What areas should be factored in to the Board evaluation?

Answer 11

competencies
experience
diversity
independence
other obligations eg regulatory; Governance Code (50% independent NEDs excl Chair)

Question 12

What are some advantages of INTERNAL board evaluations?

Answer 12

familiarity with company, culture and values
less cost
more openness from directors

Question 13

What are some disadvantages of INTERNAL board evaluations?

Answer 13

More junior staff conducting the evaluations can be influenced
less skill
time consuming
lacking credibility / independence

Question 14

What are some advantages of EXTERNAL board evaluations?

Answer 14

Objective views / feedback
more openness to independent party
skills and experience
time
credibility for experts

Question 15

What are some disadvantages of EXTERNAL board evaluations?

Answer 15

less familiar with company
cost
lack of openness from directors

Question 16

What law or code prescribes the need to conduct and report on Board evaluations?

Answer 16

UK Corporate Governance Code

Question 17

What 7 areas should be covered in a Board induction for a listed company?

Answer 17

1. role of the director (duties, policies, D&O insurance overview)
2. Rules and regulations (articles, UK Corporate Governance Code, UKLA rules)
3. Operation (composition, succession plans, contacts); meeting proceedings and previous minutes; training and development
4. business background (history, business model, market analysis, annual reports)
5. running the business (key staff, advisors, policies, risk profile, financial performance, insurances, sustainability)
6. third parties (investor relations policy, major shareholders, auditors/banks/law firm)
7. practical issues (premises overview; remuneration preferences)

Question 18

Best practice: the Governance code recommends that Boards formally adopt written policies covering key governance matters, to ensure clear division between what 3 people / groups?

Answer 18

The Board and the executive team

The Board and its delegated sub-committees

The Chair and the CEO

Question 19

Who should periodically review governance policies and who should approve them?

Answer 19

Review - Co Sec

Approve - The Board

Question 20

In line with Governance Code best practice, why is the setting out of matters reserved to the board important?

Answer 20

Ensures responsibilities are clearly set out in writing, agreed by the board and made publicly available.

Ensures decision making and authorities are clear.

Question 21

Name FIVE best practice policies for boards

Answer 21

Delegated Authority limits

Code of Conduct

NED tenure policy

Expenses policy

Committee ToRs

Whistleblower policy

Question 22

What Board sub-committees are recommended for listed companies?

Answer 22

Audit
Remuneration
Nominations
Disclosure

Question 23

What are PDMRs?

Answer 23

Persons discharging managerial responsibilities