Chapter 3 - EFFECTIVE BOARD PRACTICES Flashcards
- Which companies are required to undertake board evaluation?
All listed companies
- Which companies must carry out external facilitated board evaluation and how often?
FTSE 350 companies - at least once every 3 years
- Who should evaluate the performance of the company chair?
The NEDs led by the senior independent director
- When should directors receive induction training?
Shortly after appointment
- Is it necessary for experienced directors to receive induction training?
Yes, as all companies have different processes
- Is it better for directors to receive training all in one session or spread out during the year?
It is better to drip feed the updates rather than overload with, say, one annual update session
- Why should board committees have written terms of reference?
To ensure there are clear objectives, authority and parameters for the matters delegated to them
- Who is responsible for notifying the FCA where a PDMR deals in the company’s shares?
The PDMR but often delegated to the company secretary
- Can an employer legally sack a whistle-blower for blowing the whistle?
No
What areas are assessed in Board evaluations to ensure they are beneficial?
Good practice to examine and improve Board:
Structure
Composition
Processes
What areas should be factored in to the Board evaluation?
competencies
experience
diversity
independence
other obligations eg regulatory; Governance Code (50% independent NEDs excl Chair)
What are some advantages of INTERNAL board evaluations?
familiarity with company, culture and values
less cost
more openness from directors
What are some disadvantages of INTERNAL board evaluations?
More junior staff conducting the evaluations can be influenced
less skill
time consuming
lacking credibility / independence
What are some advantages of EXTERNAL board evaluations?
Objective views / feedback
more openness to independent party
skills and experience
time
credibility for experts
What are some disadvantages of EXTERNAL board evaluations?
less familiar with company
cost
lack of openness from directors
What law or code prescribes the need to conduct and report on Board evaluations?
UK Corporate Governance Code
What 7 areas should be covered in a Board induction for a listed company?
- role of the director (duties, policies, D&O insurance overview)
- Rules and regulations (articles, UK Corporate Governance Code, UKLA rules)
- Operation (composition, succession plans, contacts); meeting proceedings and previous minutes; training and development
- business background (history, business model, market analysis, annual reports)
- running the business (key staff, advisors, policies, risk profile, financial performance, insurances, sustainability)
- third parties (investor relations policy, major shareholders, auditors/banks/law firm)
- practical issues (premises overview; remuneration preferences)
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?
The Board and the executive team
The Board and its delegated sub-committees
The Chair and the CEO
Who should periodically review governance policies and who should approve them?
Review - Co Sec
Approve - The Board
In line with Governance Code best practice, why is the setting out of matters reserved to the board important?
Ensures responsibilities are clearly set out in writing, agreed by the board and made publicly available.
Ensures decision making and authorities are clear.
Name FIVE best practice policies for boards
Delegated Authority limits
Code of Conduct
NED tenure policy
Expenses policy
Committee ToRs
Whistleblower policy
What Board sub-committees are recommended for listed companies?
Audit
Remuneration
Nominations
Disclosure
What are PDMRs?
Persons discharging managerial responsibilities
