Chapter 7+8. : Board Composition and Effectiveness Flashcards
1
Q
List four factors that a board may take into consideration when determining its size
A
- The requirements for a balanced board
- The requirements of the UK Code on the composition of the board (Principle K)
- The need to service board committees
- The ability of the board to hold productive, constructive discussions and make prompt rational decisions
2
Q
List five of the key elements of the ‘balanced board’
A
- Separate roles of chair and CEO
- An appropriate balance of executive, non-executive and independent directors
- Appropriate skills, experience and knowledge
- Gender balance
- Diversity
3
Q
Provide three recommendations from Higgs Report (2003) relating to recruiting NEDs from diverse backgrounds
A
- The nom co tasked with considering candidates from a wide range of backgrounds
- Draw from areas such as HR, customer care and women heavy professions
- Consider recruiting candidates from private companies, charities and public sector bodies
- If operating in international markets, benefit from having at least one international NED with relevant skills and experience on their board and
- should consider bringing onto the boards of subsidiary companies talented individuals from wider and more diverse backgrounds to give them exposure to the operation of a board as a possible stepping-stone to the board of a listed company
4
Q
List four tasks that a NED should undertake as due diligence before accepting a board position
A
- Look at the company’s annual report and website (business model, governance, the market environment and dynamics, recent operational performance, strategy, risks and uncertainties, sustainability and financial performance)
- Review regulatory and media announcements issued since the last annual report was published
- Arranging to meet the chair, CEO, CFO, company secretary and all members of the nomination committee, if not the entire board, before accepting an appointment;
- If taking on the role of company chair or the chair of the audit or remuneration committees, arranging meetings with the auditors, the head of internal audit or the remuneration consultants as appropriate;
- Talk with any other external advisers, senior management, employees, suppliers and customers; and
- Check scheduled board dates for the year ahead at an early stage in the due diligence process to ensure free to attend
5
Q
Provide five actions that the Chair can undertake to improve boardroom dynamics
A
- Maintains control of proceedings (Does not dominate)
- Facilitates decision-making
- Stimulates debate, encourages all to contribute
- Encourages constructive discussions
- Promotes airing and resolution of disagreements
- Steers towards consensus
- Ensures that decisions are understood and recorded
- Creates a positive environment
- Sets an example with respect to conflicts of interest
6
Q
List 5 of the steps in setting a company’s culture
A
- Agree company’s values and align purpose and strategy
- Develop and adopt a company Code of Ethics which sets out the company’s values and expectations as to behaviours
- Values considered when developing the operational policies and procedures– the Board to SM message is clear
- Publicise the company’s values, or its Code of Ethics, (in public and internal documents and by including them in employee induction and training)
- Integrate values into the functions and operations of the company
- Employee performance management and reward systems encourage behaviours aligned with company’s culture and values
- Ensure that there is a culture of openness and accountability, employees feel able to raise concerns about behaviour, including via an effective whistleblowing policy and procedures
- Set the tone from the top – ensuring that the behaviours of the Board members individually, and the Board as a whole, are in line with the company’s values, for example by acting with integrity and transparency
7
Q
Provide four ways in which a company can measure that its Code of Ethics is effective
A
- Using staff surveys to check employees’ views about the company’s Code of Ethics
- Including the Code of Ethics as matter discussed/ surveyed as part of the company’s engagement with other stakeholders such as suppliers or customers
- Having the Code of Ethics as standing items for the Board meetings
- Receiving a report of customer complaints
- Receiving reports and feedback about the company’s whistleblowing policies and procedures, how effective they are and issues raised via any whistleblowing helpline.
- Ensuring that the Board are able to get first-hand experience or indications of the Code of Ethics within the company by being able to have direct interaction with employees and other stakeholders.
8
Q
List four ways in which the company secretary can assist the board in maintaining an ethical culture
A
- Suggesting discussions about corporate culture are on the board’s agenda
- Suggesting that culture indicators are selected based on the expectations of the organisation’s key stakeholders
- Developing a dashboard for the culture indicators that should be reviewed from time to time by the board
- Info is drawn from a variety of sources to support and monitor perceptions of performance for the selected indicators;
- Site visits so that members of the board can get out and about and meet employees to assess for themselves the culture embedded within the organisation
- Assist developing the reporting to stakeholders on the organisation’s culture
9
Q
List three elements that should be included in a Board Evaluation
A
- The mix of skills, experience and knowledge on the board, in the context of the challenges facing the company
- Clarity of, and leadership given to, the purpose, direction and values of the company;
- succession and development plans
- How the board works together as a unit, and the tone set by the chair and the CEO;
- key board relationships particularly chair/CEO, chair/senior independent director, chair/company secretary and executive/non-executive directors
- Effectiveness of individual directors
- Clarity of the senior independent director’s role
- Effectiveness of board committees, and how they are connected with the main board
- Quality of the general information provided on the company and its performance
- Quality of papers and presentations to the board
- Quality of discussions around individual proposals
- Process the chair uses to ensure sufficient debate for major decisions or contentious issues
- Effectiveness of the cosec/ secretariat
- Clarity of the decision-making processes and authorities, possibly drawing on key decisions made over the year
- Processes for identifying and reviewing risks
- How the board communicates with, and listens and responds to, shareholders and other stakeholders.
10
Q
List four elements that should be included in an induction programme for a director
A
- Explanation of the role of a director and the legal framework
- Key company documents
- Board and senior management of the company
- Board meetings and procedures
- Company policies and procedures
- Presentation from senior managers
- Business information
- Shareholders
- Site visits
11
Q
What are the key aims of a succession plan?
A
Right size
Right balance Execs and NED’s
Combination (diversity, skills, experience)
12
Q
What three time horizons should a succession plan cover (FRC Guidance on Board Effectiveness) CML
A
- contingency planning – for sudden and unforeseen departures;
- medium-term planning – the orderly replacement of current board members and senior executives (such as retirement); and
- long-term planning – the relationship between the delivery of the company strategy and objectives to the skills needed on the board now and in the future.
13
Q
Company Secretary’s role in supply of information (board packs)
A
4 stages
14
Q
What are the four stages in the development of a board pack
A
- identifying the information the board needs;
- commissioning board papers;
- writing board papers; and
- collating and distributing the board pack.
15
Q
Company Secretary role in board pack process
A
- facilitating discussion between the board and management on future priorities, the type and format of information
the board requires and also for co-ordinating the planning process; - planning a schedule of board meetings, maintaining a provisional agenda for those meetings which reflects the board’s priorities and ensuring that those who will be required to submit board papers are kept informed about the practical consequences of that timetable and any changes to it;
- co-ordinating the preparation of the board pack, including commissioning papers, ensuring that authors and
sponsors are clear about what the board requires, setting the timetable and tracking progress; - supporting those writing and presenting board papers, e.g. by checking that the papers are understandable to a
non-specialist; - acting as the ‘guardian’ of the house style and format for writing board papers;
- ensuring that papers are submitted on time;
- co-ordinating the collation, storage and distribution of the board pack;
- reviewing with the chair and other board members whether the board papers met their needs.
